You're really not right until you book the profit, or wrong until you book the loss.
Hmmm, food for thought.
I agree with the first part of this. It reminds me of one of Cramer's rules: never let a profit turn into a loss. If you open a position, and you are showing a profit, and the profit starts evaporating, close the position before it hits breakeven. I lost tons of money riding winners down before I learned this rule. Now I leave money on the table occasionally, but it's a lot better than what I was doing before.
I think the second part, "it isn't a loss until you book it", is a dangerous psychological error. It's a very natural idea but what happens is, someone buys at (say) 38, the company starts deteriorating, the guy holds on at 35, 30, 28, all the way down the line. It's one thing to have conviction. It's another thing to have "basis on the brain" and to end up saying "hey I paid 38, and *because* I paid 38, I am not going to sell at 28, come hell or high water."
Here is a related statement: "it isn't a mistake until I admit it." Very human tendency, and a very wrong attitude for an investor. |
