MARKET BRIEFING
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including folks with as little as just a few thousand dollars, to folks like Warren Buffett... Bill Ackman... and David Einhorn who manage multibillion-dollar portfolios. I’ve looked at portfolios during bull markets, bear markets, flat markets... and the ONE thing I inevitably see is that most investors end up selling their winners too early... and selling their losers too late. And this mistake costs them huge sums of money, over the long term. It isn’t just me who has noticed this situation... In fact, two leading economists did similar research on this subject that won them Nobel Prizes. And the conclusion they reached – which earned them that prize – is that investors are risk-seeking when it comes to their losses... and risk-averse when it comes to their gains. And it can be especially damaging in moments of high uncertainty and risk – like we’re seeing today. Porter – I’m sure you’ve had some experience selling a winner too early... or a loser too late? PORTER: Of course. Every professional investor makes that exact same mistake. And they make it for the exact reason that you mentioned, which is that we are very risk-averse when it comes to our existing gains and we are way too risk- seeking when it comes to our losing positions. We don’t want to admit we’ve made a mistake. KEITH: I completely agree, Porter. And I’ve personally experienced it myself. Until a few years ago, basically every investment I ever made was one where I sold for a small gain... only to see the stock take off soon after... or times when I would buy a stock and ride it all the way to zero. For example, back in 2016, I bought a company called Advanced Micro Devices. The company had been all over the news because of a big story involving a contract with Intel, and a bunch of valuable patents.
Instead, it quickly went up, went down, and then back up to around my breakeven point. I decided I couldn’t take the rollercoaster ride, held my nose, and sold AMD for a 3.5% loss. Trust me, I know how stupid that sounds today. A 3.5% LOSS on a stock that went on to quickly soar over 1,000%... so painful. All because I sold way too soon. And this is the reality I’ve had to face about myself – I am an extremely emotional investor. If I put all my money in AMD and just left it there, I could have done nothing else and made more money on this ONE trade than probably any other trade in my entire life. But instead I lost money. AMY: Yeah, that’s the kind of investment that could have had a massive impact on your finances. PORTER: It would change everything. KEITH: Oh yeah. It sounds crazy... but there’s a simple reason for this: Our emotions get in the way... whether we notice it or not... and it causes us to buy our stocks high and sell our stocks low. Based on the real-world portfolios I’ve analyzed over the years, this problem gets EVEN WORSE during times of uncertainty, like we’re seeing today, and like what Porter expects we’ll continue to see. So... no matter where you think stocks will head next... if you can simply find a way to keep your emotions in check – that alone will cause your performance to improve, no matter what happens next in 2024. Above all else, you’ve got to have a systematic way to help you decide when to buy, when to sell, AND how much to invest – without getting overly emotional about it. In fact, I know that you, Porter, early on in your business career, began using a simple strategy to help your readers know when to sell one of your recommendations... which helps prevent your readers, and even I’m sure it helps you analysts in some cases – not get too emotionally attached to a stock. PORTER: You’re talking about trailing stops, right, Keith? KEITH: Right. I know you’ve been a big proponent of trailing stops for years. Can you explain what a simple trailing stop is, for the folks tuned in at home?
I didn’t know it then, but my timing turned out to be perfect. Of course just looking at that chart, It’s
obvious I should have parked my shares and let them ride. But instead, I got spooked. Right after I bought the stock, it didn’t go straight up like I expected it to.
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