3 Tips to Curb The Pain of Investing at the Top
In my four or so years of investing in the stock market, I’ve lost hundreds of dollars by investing at the top.
Those are small losses in the grand scheme. I’m glad to have made those mistakes while young with little spending money.
It’s so easy to do. When a stock is hot for a while and trading at or near all-time highs, it’s hard to think it’s going down any time soon.
But many stocks tumble when they seem to be at their strongest — and it can be devastating for your portfolio.
How do you ease the hurt? Here are a few tips…
Examine whether the stock is worth holding onto, and make sure your money can’t be spent better elsewhere
A stock performing well for you in the past doesn’t mean that will continue to happen in the future. If a stock has hit its high and is now falling back to earth, examine the chart and make sure it’s not likely to fall 10%-to-15% before finding its footing.
If that does look likely, consider exiting the position and keeping your money at bay or investing in a stock with more near-term upside.
Wanting a stock to go back up doesn’t work. The charts say it all. Don’t ignore that.
Ignore your returns — or lack thereof — and remain objective with your positions
If you held a stock too long and it gave back months’ or years’ worth of returns, sorry about your luck. But you have to remain objective and not let emotions determine how you handle your position.
If the stock is weak, get rid of it. Don’t worry about the returns. Take an objective look at the strength of the stock and make a decision based solely off that.
Get yourself in the best position possible — and buy back into a stock later if need be
You can always monitor a stock and buy back in when it has fallen and found some support.
There is no sense in losing 10% of your position when you can sense a tumble coming. Sell your shares and enter a new position. Or keep some on the sideline to re-enter at a lower price.
We often talk ourselves into holding shares because of hope or some anecdote. This is how we lose more money than we need to lose.
Rid yourselves of those bad shares and move on. I promise it’s going to be okay.
This practice over time will leave you with much less investing heartache.
Dylan Hughes is a 25-year-old freelance writer covering self-development and his life on the road as a tour manager. You can read his writing on Medium and Substack — and check out his two books on Amazon.