How I wish they> could all be winners -- that every stock I bought would immediately jump, never dip below my purchase price and provide consistent price appreciation and hefty dividends without so much as a modest dip. Keep dreaming, right?
Of course, nobody picks only winners. What makes investors successful isn t their ability to choose stocks, but manage the trades and portfolio in which they're held. Kenny Rogers "The Gambler" sums it up exceptionally well: Every gambler knows that the secret to survival is knowin' what to throw away and knowin' what to keep.
You should go into every investment as both an optimist and a fair weather fan. When the fund was rising and showing profits in my portfolio, I was cheering it on and accumulating shares. But as it fell, I reduced my exposure selling half my position once the asset had fallen roughly 15% from my purchase price, and the remainder not far above the 52-week-low of $22.55.
Written on a page, it sounds almost effortless. In reality, taking the loss is an exceptionally painful and gut-wrenching exercise. I m sick to my stomach thinking about the thousands and thousands of dollars I lost on the trade. Even more painful, however, is simply admitting that I was wrong.
Market Vectors Vietnam ETF (VNM) 7 months>
Yet because nobody is right all the time, being able to cut losses is undoubtedly even more important than picking stocks. Human instinct has unfortunately wired us to take profits and keep losses. In reality, taking a profit means stopping the profit. Taking a loss means stopping a loss. Which seems like a better long term strategy to you?
When looking to raise cash, the first deadweight to be pitched overboard should be the losers, and even more specifically the relatively new trades like Vietnam which, by almost any measure, has still not undergone a massive revaluation (read: bull market). Better to dump the relatively small, unproven loss before getting rid of the older, larger, more established and winning trades held within a portfolio.
Of course, sometimes we re not wrong just early. Should an appetite for emerging markets like Vietnam reappear, I d most certainly look for another opportunity to get long, but not until the fund, now struggling to hold onto $23, showed demonstrated leadership. A few prints above $26.20 would be a good start.