I can’t take credit for writing this but I thought the lesson was too great not to share. I wonder if anyone else on this community has experienced anything similar?
“I bought my first stocks in February 2010. I bought shares in EA when the price was at $16 a piece. More than three years later by early 2013 and it had done absolutely nothing but go sideways. Go ahead take a look for yourself. You’ll see it on March 2013 gyrating around $17. What a waste of time and effort. All that sitting around for a buck?! EA wasn’t the only stock I bought back then either, I also helped myself to shares in Sony and Take Two. After a few years of holding like a good little investor I ran out of patience and sold everything collecting a modest profit. Truth be told I was quite pleased with myself at the time.
Any of you who did look up EA’s chart when I said to earlier will know what happened next. As if on cue, after I sold them, the companies I had been holding began to rip higher… For years… And years… And years. To summarise…
EA was $16 then and is today at $130, a missed return of 712%
Take Two was $10 then and is today at $167, a missed return of 1,570%(Christ, this one hurts)
Sony was $17 then and is today at $99, a missed return of 482%
Excuse me for a brief moment…
Over the last couple of weeks the markets have been rocked with volatility, specifically in the high flying growth stocks. These are the sexiest names that I’m sure make up a large part of most home gamers’ portfolios (myself included). When you’re seeing your investments in names like Apple, Shopify, Tesla etc falling 5+% daily for multiple days in a row it gets incredibly difficult to watch. “Maybe I should sell while I’m only down 10% and take the L?” or “I should try to preserve this capital and jump back in later when its lower” . These are thoughts we’ve all had at one time or another. Lord knows I’ve had these thoughts and acted on them. And sometimes it can be the right thing to do! But often, much more often, in my experience it isn’t.
There’s a legend in investment circles that when conducting an internal performance review of their customers accounts from 2003 to 2013, wealth management firm Fidelity learned that the best performing investors on their books were… Dead. In second place? The clients that had forgotten they’d opened the account in the first place.
All of this reinforces my view and my recommendations that investors take as long a time horizon as possible with their investments. Can you leave your money in for five years? For ten? Will you have the strength of will to do nothing when things start to trend downwards? I promise you, it is SO much harder than you think. Meditate on this before putting money into the market. And if you already have and your portfolio is in the red, revisit this post and remember that I dodged a 1,570% return in Take Two because I got impatient.”
If you like this, you can find the article here, there’s a few other good write ups too!
All too true…
I learned this lesson when, as a super-novice, I panic sold in 2008.
My current (growth) portfolio is getting seriously ‘napalmed’ this month, but I am doing nothing except adding little bits when I can.
Hard to resist the song of the sell sirens…
Correct! I got for the authors permission, before you ask
Agreed, there’s always two sides to every coin. But I enjoyed their comment on just feeling frustrated by their stocks trading sideways without focusing of the bigger picture. I think anyone can feel for the guy with the loss of potential gains with Take Two. Oof
Always easier with hindsight of course - had the investments been GE, Exxon or IBM, then selling may have been exactly the right thing to do. Most of my investing strategy is based around doing very little - but then I’m lazy
There are lots of styles of investing (or trading if that is your thing). Do nothing and carry on is a good one, particularly for index investing, but contrarian investing is another style (sell when others are optimistic, buy when others are pessimistic), or value investing (looking at company fundamentals), or momentum trading, etc… each will do better than others in different conditions or time-frames.
What most of them have in common is not letting emotions get in the way of your decisions. One big problem at the minute IMO is that most new investors have never experienced any significant loss, and find it quite shocking when their entire portfolio plunges in a day. That’s a difficult emotion to manage the first time you experience it, and navigating a bear market is even more difficult (when one arrives).
Minimising the input of emotion in your investing is the lesson I would take from this - sorrow over a hypothetical gain missed is another emotion which can induce you to take more risk than you should in future. So pick a system (like invest regularly and ignore the market), and just stick to it, even when you see others who got rich on ARGO, or GME or Bitcoin or one of the other many speculative assets which are much higher risk IMO than index funds or large businesses with diversified income streams.
Very true! I also wonder how the markets will react when the inevitable slow down in new investors kicks in. Will many sell and stop after first losses? Will people start spending on social things now lock downs ends?
Personally I wont sell anything for next 2 years min unless I have a worry about a company as think it will be a bit bumpy and don’t want to react too quickly.