Lose the Pipe Dream Pal: Book the Trade

Often times, as traders/investors, we tend to allow emotions get in the way of a good trade. We get a stock going higher and then the pipe dreams settle in.

“What if this stock went to $20?” You then take out your calculator and count the projected winnings. The very next day, instead of booking the trade, taking the profit, you hold onto that dog shit stock and watch the profits melt away.

There is one cardinal sin that I’ve seen play out in all of my years managing money, and it is this.

Imagine you’ve been buying XYZ for the better part of a year, maybe two. The stock was trading $1-3, with relative illiquidity. Your position became big enough to affect the share price and you had no idea how’d you sell the sucker, once it lifted. Lo and behold, the stock took off, first shooting to $5, then $8. Millions of shares traded hands, and on paper, you’re a multi-millionaire.

However, due to sheer gluttony, not only do you decide to hold your position–but like a jackass; you buy more! In your head, you start believing the hype and the message board trolls.

“XYZ is the next IBM.”

“Someone knows something.”

“A buy out is coming.”

Yadda, yadda, yadda.

There’s an olde saying which applies here: “one in the hand is better than two in the bush.” There’s nothing wrong with swinging for the fences. But never let a solid profit dwindle away and never fail to take advantage of a surge in liquidity, when building a large position.

Good night.

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