In nearly 20 years of first hand market experience and a dozen years of helping tens of thousands of individual investors, I’ve learned that there is one thing that threatens our investment success more than anything.
I’m going to illustrate it for you with a personal story.
A couple of months ago I wrote to you about my trade in McDonalds (NYSE: MCD). I had purchased MCD in August of 2014 when it dipped into the Low Risk Zone and some of my other indicators suggested it had room to run.
Indeed, I did enjoy a nice run, finally getting stopped out on June 28, 2016 … during the volatility following the Brexit vote. (Yes, I did actually sell the next day.) My stop literally got tripped by 8 cents and MCD shot right back up by $4 in the next 4 days.
That’s about where things stood the first time I wrote about MCD. At the time I wrote about not regretting my decision to sell even though my stop was barely hit and the stock popped right back up. The market gods decided to test my resolve even more.
Over the next three weeks, MCD rose 10.3% from $115 to $127 with hardly a single down day the whole time.
Did I regret getting stopped out? Did this cause me to question the SSI Stop signal? Not at all! I didn’t give it a second thought.
Longtime TradeStops members know that I have spent years studying investors’ behavior and emotions … and there is one emotion that stands out above all others as the single biggest threat to our investment success – the fear of regret.
Notice that I didn’t say “regret.” I said, “the fear of regret.”
It’s the fear of regret that prompts us to not sell when our stop is hit or to jump into a stock when the media is working up its audience into a lather over the next hot ticket.
What happened with my MCD trade is every stop-loss believer’s worst nightmare. Your stop is triggered by pennies. Then, the stock rips right back up by 10% without a breather and leaves you looking a fool. Right?
My MCD trade was a good trade, I made money in the trade. I stayed in the trade for nearly 2 years … nearly twice as long as the average investor stays in a position these days. I made over 26%, including dividends. Because MCD is a low-volatility stock, I gave it a larger position in my portfolio.
What’s to regret? I was happy to stop out of the trade because that’s my goal with every trade.
I want to hold onto a position until it hits its stop.
I’ve learned over the years, often times the hard way, that this is the best way for me to make money in the markets.
Did I leave some money on the table? Possibly, but it really didn’t matter.
What really matters the most is that I have a system for making investment decisions without the fear of regret. I am confident that my system puts the odds in my favor … and I execute on it.
The fear of regret is the single biggest obstacle to our investment success.
Overcoming it is our single biggest opportunity to improve our outcomes as investors.
My confidence in the TradeStops system was eventually vindicated in MCD as well. In spite of the 10.3% rally in MCD, it never triggered a new SSI entry signal, it put in a lower high and now a new lower low as well.
The tools of TradeStops are there for you to put the fear of regret behind you and become the confident and successful investor you know you can be.
No (fear of) regrets,
Richard M. Smith, PhD
CEO & Founder, TradeStops