One of the top emotions for many investors is “fear of missing out” (FOMO).
Likely you already know all about this.
If you watched just about any exciting new tech come to market and pass you by, you definitely experienced some level of FOMO.
But there are other fears and tactical errors investors can only see with hindsight.
Today, I’m going to share a few of my own.
But what has allowed me to make fewer of these errors over the years and become a better trader (including one of my best years ever in 2020 despite the following) is to learn from them.
Since many stocks are rewriting their all-time high history daily, this might seem like less of an issue.
But it’s at times exactly like this that you should start thinking hard about locking down your wins. Or I should say, managing your risk of losing them.
Here’s an example I had last year of not taking gains that were offered on a silver platter.
To my Wealthy Technologies Investor (now CounterVest’s Stock Alpha Report) readers, I recommended shares of a small but already highly successful health data company called Livongo.
A few months later, it was bought by a huge $30 billion company called Teladoc Health Inc. (NYSE: TDOC).
That deal gave readers shares of the newly-combined company. And they did very well.
The premise behind this play was spot on.
It had been on fire, with huge demand for its digital health data management platforms. And once a bigger fish decided to gobble it up, shares continued climbing in the new stock:
As you can see, following the buyout/merger with TDOC, shares exploded to start this year.
They reached $308 just a few weeks ago, which would have been a massive gain for readers.
But I held on, expecting even bigger things. Since that peak, shares are down 40%.
It’s not that readers are sitting on a loss. No, they are still doing very well. But they could have taken even larger gains off the table.
This fear is most common just after the market turns.
Think March of last year. Many were sitting on gains from the bull market since the Great Recession. Then, all of a sudden, the market was in free fall.
The answer to this isn’t necessarily to just sell with any profit.
The answer is risk management.
Set targets and adjust your position over time. If that means selling some shares but not all, then that’s what you should do.
I still believe in TDOC. So, selling the whole position wouldn’t make much sense. But cashing in on some of that huge rally would have felt a whole lot better.
The flip side of this is best shown by examining my Zoom Video Communications Inc. (NASDAQ: ZM).
You might already know where this is going.
I recommended shares of ZM to readers in January last year. No one in the world was expecting what followed.
The world went into lockdown and the most important piece of technology to keep everything from schools to businesses functioning was Zoom.
Obviously, readers did well. But I recommended they sell in late May at $171.06.
Guess what it goes for today.
The answer to this is the same as above: managing risks in a portfolio and position size.
Zoom in January 2020 was a great little stock that was making inroads on sweeping remote work communication. By March, it had already been changed into a basic need for many.
With that change, realizing that the company had evolved should have kept me in a little longer.
If I would have applied both of these lessons, I would have started repositioning in late last year, rather than May… locking in maximum gains.
Again, readers did well on both. These trades are still triple-digit successes.
But managing fast stock successes like these a little better would have put far more dollars in pockets.
And that’s how any of us can get ahead in the market.
The market is imperfect. That’s what makes it great. That creates opportunities like these I highlighted.
And Wall Street’s game is to hold your money, not build it. So, it’s up to you to protect gains and manage risk.
It’s what our focus is here at CounterVest; take money from the market, keep it and multiply that.
Knowing when to hold, fold or even double down is a skill, which most everyday investors haven't had the chance to develop.
Anyone can get into a stock, but it's when you get out that matters.
That's what separates those investors from being average to beating the market.
Here's to living rich,
Joshua M. Belanger
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