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Posted by: timhyma Member Level Grandfathered Member Date: Sunday, February 17, 2002 7:07:04 AM
In reply to: None Post # of 46461  Send a link via email Share on Facebook Tweet this post
***Commentary***
The feeling of losing on a stock is not a good one. It is no fun losing
money, particularly when we have to work hard to make the money in the
first place. Many investors despise losing so much that it clouds their
vision and prevents them from winning in the stock market.

Investing in stocks is a probability game. You can not expect to always
be
right, and when you are wrong, you have to crystallize the loss. If
your
investment plan is to never take a loss, then you will quickly find
yourself invested in a lot of losers, with little hope of finding a
profitable exit door.

People dislike pain, and make a considerable effort to avoid it. Losing
money is a form of pain, and many investors avoid the pain of losing in
one
of two ways.

First, they sell a winning position at the first sign of weakness,
giving
the stock little room to give back some gains before resuming an up
trend.
Instead of playing to win, these investors play to avoid losing. And by
choosing this approach, the investor leaves a lot of missed profits on
the
table. While they may still make a profit on the trade, they don't
maximize
their profit potential. And over time, the inevitable losses are
greater
than the gains because their gains are too small.

Second, the investor avoids taking the loss, because selling a loser is
too
painful. Soon, a small paper loss becomes a bigger paper loss.
Eventually,
the loss has to be crystallized, and it is often much larger than it
should
have been if the investor had taken the loss when the market proved the
investor wrong.

To be a successful investor, you can not fear losses. You have to play
to
win, rather than to avoid losing. It is cheaper to take the loss when
the
market proves you wrong, rather than avoid the pain of losing and
letting a
small loss grow bigger. Losing is a part of the investment process, and
should be considered important to making money.



Small Cap plays: #board-865
Big Board plays: #board-711
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