Editor’s Note: United Asset Strategies, Inc will be contributing a series of articles during the next year about the “Top 10 Money Mistakes.” Part seven is about learning discipline to help avoid holding on to stocks for too long.
An investment plan should include some predefined disciplines. Having and staying true to these disciplines will help remove emotions from the decision making process. These same disciplines can also help you avoid holding a stock to long whether you have a loss or a gain. Some tell tale specifics to be cognizant of include analyst updates, competition, obsolete or new products, management changes, insider activity, balance sheet deficiencies, industry innovations and product liability. For example, if you have a position in a consumer products company and there is news related to possible product recalls over safety concerns, you may consider exiting your position to mitigate losses or take existing profits. Following your disciplines will also help identify when an existing loss should be realized and it is time to move on before that loss worsens. It is not uncommon for an undisciplined investor to become “married” to a position with a loss and hope it will recover. Unfortunately, more often than not, that loss worsens and the behavior is repeated. This lack of discipline can prevent an investor from moving on and reallocating those funds to a new opportunity. By keeping an open eye to these specifics as they relate to your portfolio and disciplines you can more easily recognize when to exit a position and avoid holding a stock too long.
Lee DeLorenzo, CFP is the President of United Asset Strategies, Inc (UASI), a SEC Registered Investment Advisory firm. For more information, email info@unitedasset.com or call 516-222-0021
