Investor's Code: Buying and Selling

Having a code is important in life. A personal code can help you determine what you yourself view as an easy moral choice and what you will help you sleep better at night. Whether this be a moral code that acts when you have to stand up to a bully who is taking advantage of you or someone you know or maybe it’s just returning a lost wallet that has a huge amount of cash inside, a moral code is a requirement in life.

Now, investing may not require as much of a moral code. I myself have a few investments in “sin stocks” that may be a little more against a moral code than others but my moral code isn’t what we’re talking about here. The reason I bring up having a code is that I believe that investors must have their own code that corresponds just with investing. It’s a code that defines what stocks are worthy of a buy and which are worthy of a sell. Without a code an investor can find himself in an awkward spot and without a direction.

Stop Fight a Losing Battle

The stock market is a brutal beast of lessons that will be forcibly learned. These lessons can defy what kind of investor you may become and how successful you may end up in the long term. One of the most important lessons that has to be learned is to sell when a stock has become a losing battle that may never be a success story.

Failure is never easy. Admitting that a stock that you invested in is a losing stock is never easy. Whether it be mental or psychological, many investors fall into the trap of buy and hold forever regardless of the losses that may occur. Stock dropped 50%? Sounds like a good hold strategy. It’ll come back someday - won’t it? Possibly.

Selling: The Emotional Response

What is it that makes us human? One could argue anything really. It could be our ability to adapt as mammals to new situations. It could also be our ability to feel emotions beyond that of the initial origin. The point is that being human comes with many advantages but also with some clear disadvantages. Sometimes however, they can be one and the same.

One of these advantageous disadvantages is our ability to feel emotions on a higher level and to learn from them on an IQ level that is above that of other species on the planet. By having this ability we can think, reason, and make judgement calls based on it to predictably influence our future course or direction. When this is applied to stocks our minds can play tricks on us. Did you know that the human brain can experience pain much stronger than it can experience happiness?

The feeling is a gut response by your sympathetic nervous system that makes sure that if something bad happens in your life, you may be smart enough to avoid it next time. This is a serious advantage when it comes to learning lessons in the stock market. If we make a bad pick, we can learn from that pick and how to avoid it next time (to a certain degree). This however is also a double edged sword, as I motioned to earlier in the article. By having this ability, we can also be tricked by our own minds.