Emotions: The Greatest Enemy of Investing : Small Time Blog

Emotions: The Greatest Enemy of Investing

by Bradley Voight on 11/08/13

I am here to learn along side of my readers, not to instruct them. I happen to be an emotional person by nature and that has been the biggest roadblock to my success as an investor. I have formulated an approach to picking companies, I have learned how to interpret charts, I know how to value a company based on the numeric fundamentals, I know how to look for good entry points and I know how to trade if need be. Those things are all easy to learn, so easy ANYONE with a 5th grade education can learn them. Becoming the master of my own emotions is the one challenge that I have failed at over and over again in this game. Over the last couple days my emotional responses have cost me not only money, but also positions in companies that I still love. I was shaken out of STKL, even after having just bought 45 shares the day before @$10.70. A ho-hum earnings report for the third was met with a 16% sell off of which I blindly joined by selling all 275 shares @$9.25. Then I went looking for trouble and I found it. RVLT dropped to $2.60 I whacked it. SIRI-whacked as well. I was headed for more and luckily all my penny stocks were un-tradeable due to a glitch on the over-the-counter markets. So there you have it an emotional train wreck that ultimately left me out of RVLT's 20% rise after this mornings earnings call.  


How did I respond to the mayhem I just brought on myself? I regrouped, swallowed some losses in $'s and shares, and I re-entered all three companies along with two more that I have had on watch, Kior  (KIOR), a biofuels company, and Fabrinet (FN) an optical laser and scanner business. I made a pact with my wife to not watch the the Scottrader all day, a pact that I myself see as nearly impossible to live up to.
Peter Lynch said in one of his great books, all of which I will be re-reading, that just because the price of a stock drops right after you bought it, that does NOT make it a bad investment. STKL is not a bad investment, yet it fell hard right after I bought it and nothing the company did caused that fall. People who owned the stock for two years were sitting on a 220% gain as of two days ago and they probably took some, if not all of their shares of the table for a nice gain. The company made record revenue of $303 million in the 3rd quarter but business expansion costs cut into that revenue and earnings per share came in at 7 cents instead of the 10 cents analysts expected. The company maintained it's future outlook adding that these expansion costs will be an ongoing drag on earnings for at least 2 more quarters. 

I know that all the online brokerage platforms have trade in their names. Scottrade, TD Ameritrade, E-TRADE, Trade King, Trade Monster. This insinuates that you must trade, but the people who own stocks are called shareholders. If the company is solid and the story is good, then hold the shares until things change, a lesson I'd do well to heed. A great example, the first 2 companies I looked at when I started my online account were Brookdale Senior Living (BKD) and Mueller Water (MWA). At that time I had $11,000 in my Scottrade account (I eventually withdrew $3000, to buy a truck). What if I split that equally between these two companies and walked away from the computer screen on November 8th, 2011 only to return today November 8th, 2013 here is the heartbreaking math:

BKD 11/8/2011 price: $16.63 per share. $5500 would have bought 329 shares after commissions. 329 shares x today's price as of noon of $28.50 would be $9376.50 a gain of $3876.50

MWA 11/8/2011 price: $2.45 per share. $5500 would have bought 2242 shares after commissions. 2242 shares x today's price as of noon of $8.48 would be $19,012.16 a gain of $13,512
  
GRAND TOTAL 2 YEARS LATER $28,388.66 a gain of $17,388.

I WAS ABLE TO IDENTIFY AT LEAST 50 OTHER COMPANIES THAT MOVED THIS WAY OR EVEN GREATER!!!!


IT PAYS TO BE A SHAREHOLDER, NOT A TRADER!!!!



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