As a host of a national radio show, I get a lot of calls and emails from investors who ask me specific questions about their investments. Just the other day, I received a call from a listener that so reflects the mentality of investors. Here it is:
The caller told me that he had bought a natural gas stock at $50 a share. The stock is now sitting at $44 and he is resistant to sell it because winter is coming and he’s convinced that demand will go up. He’s down 11% on his original investment and natural gas has lost 23% in just three days. He got in at the high after natural gas had already gained some 50% and the stock was priced for nothing less than perfection and a colder than already expected winter. This guy was onto a good investment, but he made a bad buy. And it all has to do with timing.
Timing is crucial for trend followers. When a trend is firmly in place, you have to look at those investments and ask yourself how long the word has been out and how much more play could be left in the investment. Investments that have been long in the trend get far more risky to the downside as time goes by. That is why it is imperative to have both a financial investment strategy and a strong sell discipline firmly in place. When a trend presents or reverses itself, you will lose money if you hesitate in the buy or the sell. Emotional attachment to an investment will lose you money every time.