A Blog Mini Series
Once in a while you will regret walking away from a winning venture. Looking back, your decision of quitting will look like a wrong one as you watch a winning set continue on going without you. This situation happens to every speculator from time to time and may be very depressing.
But on the bright side, in the long run you make more money when you control your greed this way. You may have made the decision to quit early a couple of times resulting it turning out to be the wrong choice, but there will be a lot more times when it turns out right.
So, as it is said, “Always take your profit too soon.” What does this mean? Don’t ever try to squeeze every last dollar out of a venture. Always cash out before a winning event has reached its peak. Do not worry about the possibility of a venture still having a long way to go. This creates the fear of regret-do not fear regret. Since no one can tell the future, it is not possible for you to know when a venture is at its peak. So, you must assume it is close rather than far. Get out and take your profits. Remember (again): no one ever went broke taking profits.
Not following this rule can lead to devastating results. Take a look back in history of real estate crashes and stock market crashes. You can see and imagine the results from the greedy who tried to ride their investments all the way to “the peak” to squeeze out every single dollar, only to fall off the edge into a canyon resulting in catastrophe.
Decide beforehand what you want to get out of a venture and when you achieve it, get out.
The purpose of this rule is to help you answer the difficult question of, “What is enough?” Greed makes this question a challenging one. However much one has, one wants more. It’s just “programmed” in the human psyche.
Having a goal and sticking to it even before you get started in a venture will help you lower the probabilities of you being a victim of greed. Without a goal, there is no foreseen end. And with that you will likely continue on stretching your luck (Part Two) and possibly losing it all. It only will end when you say it ends. But again, this is easier said than done because of a few psychological factors.
A great way to reinforce “the end” or to stick to a goal is to rig up some kind of reward for yourself. That reward could be anything. A new car, a guitar, a five star dinner with your spouse, an exotic vacation, etc. When a goal is associated with an actual event, it becomes something to look forward to. Many veterans of risk taking use this psychological strategy on themselves to help rid of the effects of greed.
Many investment counselors and advisors, dating back to the eighteenth century for whatever reason, look down on this practice. They say you aren’t supposed to spend your investment capital especially for something such of a fancy fur coat. They call it invading capital.
But, so what then is the trouble of making the money? What is it there for? Investment capital is money like any other money. It shouldn’t segregated and be marked as ‘hands off’. Of course there are good reasons for not touching it such as for retirement, for your family, the children, etc. But, skimming some off to enjoy, especially when you have reached your goal, won’t hurt and would be of better value to your lifestyle.
You will be wrong in this game of speculation. You can depend on this. You expect roughly that half of your speculative ventures will turn out sour before you have reached your preplanned goals. Half of your guesses, judgements, advice and hopes will be wrong. Stated in Part One, you will lose from time to time.
Successful speculators, gamblers, and risk takers know what to do in these situations and handle things better, without hesitation. Knowing how to get out of a bad situation may be the rarest of all speculative gifts. It is rare because it is difficult to acquire and some say it is the most important one for any speculator or risk taker.
A successful trader of the stock market put it this way; “I’ll tell you how I became a winner. I learned how to lose.” A successful poker player, when asked what makes a good poker player, he answered, “Knowing when to fold.” An amateur gambler hopes and prays the cards will fall in his/her favor, while a professional studies how he/she will save themselves when they fall against them. That is probably the biggest difference between the two.
The act of getting out of a bad speculation right away is the key to a successful risk taker. The inability of doing so will probably cost more money than anything else. Getting stuck in a losing venture is painful and costly.
“When the ship starts to sink, jump!” Note that it says when it starts to sink. Do not wait until its half submerged. Don’t hope or pray. Jump! Look and study at the situation realistically. If there is no trustworthy evidence that improvement is on the way, or if you see none, take action and get out. Save yourself before everyone else begins to panic.
The idea is to take small losses to protect yourself from the big ones. Also, if you get stuck in a losing venture and stay in it, you will pass up other promising ventures that you could have been making money in. Get into the habit of taking small losses. Accept it cheerfully as a fact of life. Expect to experience some while awaiting a large gain. You can pertain this axiom to other areas of life also, if you shift your paradigm to see it.
Again, this is easier said than done. Knowing this rule is only half the battle. There are challenges that get in the way of enforcing this rule and are not easy to overcome because it goes against the human psyche. Here are the challenges:
One of the challenges that is posed is the fear of regret. Again this was stated earlier in greed. In this situation though, you would fear that a loser will turn into a winner when you do get out.
Another challenge is the need to abandon a part of your investment. It is painful when you do lose money. Sometimes the experience is so painful that it paralyzes people from doing what’s right, in this case to get out of a losing venture. The instinct of an amateur is to hold on and hope to get that money back even though the speculation is realistically not a good one and where there are other more promising ventures. It does get easier and less painful with practice and experience. The key is to build your tolerance (Part Two).
Last challenge but not least in enforcing this rule is it is difficult for people to admit they were wrong. People differ in how this challenge affects them. For some people it is very painful for them to admit they were wrong. And to get out of a sour venture requires one to do so. This is a pride and ego factor. Some people evade the necessity of being wrong so they can feel like they are smart. In result they always get trapped in bad ventures. It seems foolish, but it is a realistic challenge for many. Think about it. Are you doing this to prove you are right or to make money?
These are the common and difficult challenges for people to overcome and you are not immune to them either. You must shift your paradigm and see that you are vulnerable, and prepare yourself for them.
End of Part Three