The Number One Killer Of Portfolios… And How To Avoid It

Are you controlling your investments, or are they controlling you?

I’ll admit, it’s a tough question. Most individual investors don’t even bother to think about it. But if you consider yourself a classic “buy-and-hold” investor, you have to wonder whether all that “holding” is really just letting the market jerk you around.

When volatility is high in the market, many investors lose sleep when they don’t have to… It’s easy to feel good about a strategy when everything’s going up, but when the market is tumbling, those long sleepless nights are filled with anxiety, fear, and uneasiness.

And the worst part is that it paralyzes you. You’re undecided on what to do. So you don’t do anything. You simply watch your profits vanish, while watching your small losers turn into large ones. Your investment strategy turns into a “hope” strategy. You sit around and hope the market turns around so you can break even. And if things are bad enough (remember the financial crisis, or the COVID-crash more recently), you may even tell yourself that if you could just get your money back, you’ll never invest in stocks again.

There’s A Better Way…

Here’s the reality that too many individual investors are afraid to face. That “hope” strategy is really a hopeless strategy. To become truly successful at investing — and regain those good nights of sleep — you can’t allow your emotions to take control of your portfolio.

Emotions are the number one killer of portfolios. One of the best ways to alleviate this massive problem is to have plan in place — more importantly, an exit plan.

You see, buying a stock is the easy part… Anybody can go out and type in a ticker symbol and hit the buy button. But where you’ll really separate yourself is knowing when to sell.

One of the best ways I’ve found is to use a rules-based, systematic approach to the market. This is the exact approach my readers and I use in my premium advisory, Maximum Profit. Not only does this system provide us with which stocks to buy, but it gives us clear buy AND sell signals. It takes all of the emotion out of the equation.

Sure, we bag more than our fair share of winners. But more importantly, it gets us out of trades before they really tank. And it helps move our portfolio into cash when things become dicey. In fact, there have been times when a third — or even half — of our portfolio was in cash. More times than not, it turned out to be a good move.

After all, if a system that’s built on the premise of buying what’s working in the market at any given time isn’t delivering a slew of new picks, that should tell you something. And when the market takes those “buy-and-hold” investors on a wild ride, our portfolio can weather those blows just fine. Even better, when things calm down, we have dry powder on hand to get right back to work.

Closing Thoughts

Now, let me be clear… I’m not saying you should have that much in cash all the time. What I am saying is that by having an exit plan in place, we can let our winners ride and cut our losers short.

For us over at Maximum Profit, that means our winners can post returns like 18%, 28%, 45% and 90% in a matter of months. Meanwhile, our losers are usually much smaller.

To understand what I mean, I want to show you an updated chart that I’ve shown readers of my other premium advisory, Top Stock Advisor. It’s a 10-year chart of IBM (NYSE: IBM), a stock that has been touted for years as “cheap” and “undervalued”. Investors in Big Blue have been waiting and hoping for a turnaround for years. And it’s underperformed the market year after year…

IBM 10-year chart

I’m not saying this to denigrate “buy-and-hold” investors. Exactly the opposite, in fact. Sure, the strategy can work — but it takes patience (which most of us don’t have) and, more importantly, time (which is in even shorter supply).

The bottom line is that nobody cares more about your investments and your money more than you do. That’s why you need to take control of it, instead of letting it controlling you.

If you don’t have a plan or system in place, then I urge you to get one. Even if it’s as something as simple as using a stop loss. Don’t be afraid to sell a stock for a modest loss. You’ll be much happier to sell it at a small loss than watch it turn into a massive one, all because you were “hoping” for it to get back to even.

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