How do you control emotion when your stock goes down

[SharperDingaan]

We just take a page from the 'stock' versus 'flow' view of human resources. Stock of 'employees' as family assets less liabilities, inversely ranked by 'accessibility'. Flow of 'employees' as investment cashflow less all debt service. 

 

We have a life outside of investing.

So long as we hold a lot of quality assets and are cash-flow positive - we really don't care if the price falls, as we don't need to sell.

We will also hear from other people, and have a much healthier life/investment balance.

 

We're not that concerned with timing either, as we're not trying to buy when 'XYZ' is cheapest.

We just need to be able to broadly recognize when 'XYZ' is both cheap and expensive, we're pretty good at it, and act accordingly. There will be sizeable gains along the way, they'll pay off mortgages and business investments, and the family willl permanently live better as a result. Whether an individual investment takes 1 year, or 10, it's out of our control - so why get worked up about it?

 

Long-term greedy, and not short-term focused.

Obviously if opportunity presents, we will look at it (Euro banks) - but our interest is primarily practice, and the 'teaching' opportunity; occassionally a little fun as well ;) Arguably our real risk is the 'loss of grounding' as the family liabilities shrink to zero. Our cure has been the back-of-a-truck overland trip through the third world, the mix with the people, and see/smell the dying and the sick. Ultimately, social enterprise at work.

 

SD

 

 

 

 

[Lance]

Glenlivet

 

Thanks

Lance

[Cigarbutt]

Glenlivet

Thanks

Lance

When a stock really goes down,

Do yo double down?

or

Do you make it a double?

Thanks

[TwoCitiesCapital]

Glenlivet

Thanks

Lance

When a stock really goes down,

Do yo double down?

or

Do you make it a double?

Thanks

 

The two don't have to be mutually exclusive :)

[Viking]

I go over ‘the story (why i bought the stock in the first place). Is my logic correct? If the story is the same (or better) then i hold.

 

When we get the big downdrafts like the past couple of weeks, watching tv can be dangerous. The announcers are stressed and their tone and questioning feeds insecurity. Many of the ‘professionals’ they talk to have little idea what they are talking about. Fear is in the air and it is important to keep as rational as possible.

[Spekulatius]

I wouldn’t call the last few weeks a big downdraft. Downdrafts as I define it would be 20% downdrafts in broad indices. I personally embrace downdrafts as I mostly keep cash round to average down at lower prices. Other than that it’s best to escape the news cycle and look at the market in broader terms, but also watch out for risks in your portfolio haven’t been fully assessed.

[whistlerbumps]

Get away from your screen and don't look at your P&L frequently.  The less you see the share prices, the less it affects you.

[Broeb22]

As a youth, I played baseball competitively, and I was pretty good until the competition got better in high school. Prior to high school, I threw fits on the field as a pitcher when my infielders bobbled what I considered easy-to-field balls. When I got to high school, during the spring, when I did that, my coach pulled me behind the dugout, and told me that I would never play baseball for this team if I pulled stunts like that ever again.

 

That episode made me change really fast, and along the journey to controlling my emotions in high school, I stumbled upon Marcus Aurelius' "Meditations". I found it to be enormously helpful in putting events in my life into perspective, and training myself to not get too high or too low. It's just simple Stoicism, but it works for me, and not just for stocks.

 

I'm not claiming to be perfect. I still resent my former boss for some things he said and didn't follow through on, but overall it works better than what I was doing before.

[cameronfen]

I feel like if the stock goes down and I dont want to buy more, I consider selling at least some of the position.  Either I dont know the thesis as well as I should or the thesis has changed/is changing.  Either way is a good reason to sell.  When stocks go up, if I size them correctly I try to sell more once the stock settles and no longer is going parabolic, to keep position size similar to original portfolio. 

[muscleman]

How do you control your emotion when the price of one your top holding stock or the market value of your portfolio drop?

 

Mr. Buffett always values temperament and one’s ability to control emotions for investment success more than intelligent or knowledge.

 

“The most important quality for an investor is temperament, not intellect. You don’t need tons of IQ in this business. You don’t have to be able to play three-dimensional bridge. You need a temperament that derives great pleasure neither from being with the crowd nor against the crowd. You know you’re right, not because of the position of others but because your facts and your reasoning are right.”

 

“I am rational. Plenty of people have higher IQs and plenty of people work more hours, but I am rational about things. You have to be able to control yourself; you can’t let your emotions get in the way of your mind.”

 

As value investors, we always understand the price volatility is not risk, the permanent lose of capital is. However, no matter how well I understand and remember these concepts, I still experience emotional swings when one of my top holding or the market drops significantly. During this situation, my subconscious may take over and initiate the automatic response.

The brain of different person may wire differently. The brains of great value investors, such as Mr. Buffett, Munger, Klarman etc may be wired in such a way that they experience little emotional anguish when their stock or portfolio goes down.  But, I believe most people experience emotional swing when their stocks price goes down a lot or up a lot.

 

How can one train one’s mind to respond differently? If this is a personality trait that cannot change, great value investors benefit by their genetics.

 

If one cannot control his emotion, he may make wrong buy/sell decisions and mastery of investment knowledge or IQ does not help.

 

I recommend you read my post here:

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/i-have-given-up-value-investing/

 

For the past 9 years, I've been trying to fix my emotions but I gave up eventually. I am the kind of person who simply cannot buy a stock, see it go down 50% and remain calm. Therefore I am not suitable for value investing.

 

[james22]

I'm good when my stock goes down, thinking I've a chance to average down.

 

My problem is buying after my stock has gone up, thinking I've missed the better buy.