“I didn’t sell that stock when you told me to…”
I hear this from readers all the time.
Here’s another common refrain:
“I bought that stock five years ago … how do I know when to sell?”
My dad is the worst at this. He’s like a stock hoarder. He can’t sell … won’t sell … or when he does, he has no idea why. He just sells stocks randomly.
It drives me nuts … particularly when I know he can be doing better. I keep telling him that’s my inheritance he’s fooling around with.
He’s not alone. That behavior is common. It’s why the average retail investor can’t outperform the S&P 500 Index.
A research group, Dalbar Inc., studied 20 years of investor returns from 1995 to 2015. The S&P 500 averaged 9.85% per year. The average retail investor returned just 5.19%.
Sell Stocks Based on Risk, Not Emotion
The reason for that, they concluded, was this:
“Investor behavior is illogical and often based on emotion. This does not lead to wise long-term investing decisions.”
That’s why I have a job. I spend 40-plus hours a week researching stocks. My team and I do a ton of work analyzing the sectors, vetting the companies and making sure the risk-to-reward ratio justifies buying the stocks.
But all of that information is useless if we don’t manage our investment rationally.
In our Real Wealth Strategist newsletter, we use trailing stops on all of our positions. They give us a rational, mathematical safety net. They tell us when to sell based on risk … rather than emotion.
My readers used trailing stops to secure gains of 25%, 40% and 70% late last year. Without them, it would’ve been easy to assume our stocks would keep going up — and watch our paper gains disappear when volatility hit.
More importantly, we protected ourselves from huge losses. One of our positions hit our stop with a 16% loss. We followed our stop … much to the chagrin of some readers. They loved my story on the stock. They felt disloyal…
All emotional reasons not to sell.
We got out at $1.42 per share. It fell below $0.85 per share in March 2019. Our 16% loss was modest. If we had held, the loss could have hit 50% or more.
But I know my dad struggles with stops. I set up a simple spreadsheet to follow his stops. But his life is too busy. He has other priorities. And I know many of you struggle with it, too.
But here’s the thing. Not using stops cheats you out of money — a lot of money. That’s what happens if you don’t manage your investments that way.
The good news is, I found a way for you to automate your portfolio management.
An old friend and colleague of mine, Dr. Richard Smith, built a powerful service that will automatically track your stocks and trailing stops. And it can create trailing stops customized for your trading style.
It’s a unique and powerful service that I can’t say enough about … but it’s more than that.
For many of you, like my dad, investing is part of your retirement strategy. Dr. Smith, who holds a Ph.D. in Math and Systems Science, is holding a seminar on retirement.
A New Way to Grow Your Retirement
The theme is “The Great Retirement Reset.”
He’s going to talk about the five risks to your retirement portfolio:
- Longevity.
- Inflation.
- Volatility.
- Expense.
- Solvency.
Proper portfolio management can reduce all of these risks. And you can get help with that if you use his flagship product — TradeStops.
I don’t want you to take my word for it though. I’d just like you to listen to what he has to say. Sign up for the webinar today. It’s free and takes under an hour to watch.
I’ll tell you the same thing I told my dad the other day: This is the best hour you’ll spend on your retirement investments … period.
Good investing,
Matt Badiali, Editor,
Real Wealth Strategist