Do you have a hard time letting go of old junk?
Do you struggle to offload items that have worn out their welcome?
If you’re nodding sheepishly, you’re not alone.
Take me for example.
I’ve waged a life-long battle against my instinct to hoard clutter.
Free Reports:
Whether it’s VHS tapes from the 90s, outdated clothes or old school books…you name it, I’ll keep it.
You see, these are all items with which I associate fond memories. Or I just have to retain them for some unknown, but important future purpose.
It could have been much worse. I moved from Melbourne to the United Kingdom, through four apartments in London and then back to Melbourne. That forced me to make tough calls on lots of sentimental objects.
Even so, just about every time I see my parents, my mum needles me to throw out one box of ancient souvenirs or another.
Mum’s right to do this. It’s healthy to throw out stuff that’s passed its use-by date. Otherwise, it bogs down your life and people start to worry about you…like the gent pictured above.
It’s just as healthy to take this tack with your investments. Let me explain…
Have a look at your investment portfolio.
Are there stocks or other assets in there that you just can’t bring yourself to part with? The kinds that fill you with mixed emotions?
Are there companies on your list that you’ve forgotten why you bought?
Or what about those shares that you own because ‘one day they’ll work again and be worth something’?
If you’ve answered ‘yes’, then you’re hoarding investments.
Don’t despair; the first step is admitting that you have a problem…
There are three reasons why people hoard stocks.
The first mistake is what I call ‘investing in the rear view mirror’. That’s when people fixate on a company’s past glory. They refuse to take a view on where the firm is heading now.
It can be tough to let go of a once-golden stock. You might have made a lot of money in it over the years. But times change. Empires can crumble. The market slaughters companies that ignore competitive threats.
A company’s CEO might be asleep at the wheel. But that doesn’t mean you have to stay on board. That’s the beauty of the share market. You can sell out for minimal fuss and start afresh.
Here’s the second mistake that hoarders make: failing to put an objective investment process in place. I’m talking about the set of rules you draw up that help you time what to buy, when to sell, and how to structure your portfolio.
It might seem like a dull chore. But if you want to make money from the stock market, it’s mission-critical. What’s more, you can fit it on one A4 sheet of paper.
Once you’ve identified an interesting stock, here are the key points: establish your buy price, your sell price, and set your trailing stop-loss.
You’ll determine those points based on what you think the company’s worth and your appetite for risk. Those are personal decisions that only you can make.
This is precisely why Kris Sayce and I highlight our maximum buy-up-to price every time we recommend a stock in Australian Small-Cap Investigator.
When you do this, put a timeframe on when the company’s profits will take off. Tell yourself ‘I will only give the market this long to appreciate this opportunity.’
Taking that kind of disciplined approach will save you money and heartache.
Companies who delay their projects and apologise for weak sales are a dime a dozen. If you’re holding on to a dropping stock because you enjoy their products or the CEO is a nice guy, think hard about who’s reaping the benefits.
The third, and simplest, reason why people hoard stocks is this: sheer laziness. Too many people buy stocks, toss the share certificates in their bottom drawer and proceed to ignore the company’s performance.
That kind of passive approach gives you the illusion of objectivity. You might think it qualifies you as a ‘long term investor’. But really, if you set and forget about your investments, you’re setting yourself up for a big fall.
Even if you spend just five minutes of your week thinking critically about your investments, you can stay ahead of the game.
Kris and I know you’re busy. That’s why we keep our weekly updates for Australian Small-Cap Investigator short and sweet.
The Aussie market is great market for speculating. It has plenty of small-cap resources stocks, a healthy biotech sector and a growing tech industry.
But how do you profit when the Aussie market goes through a quiet patch? It can happen. The past three months have brought the benchmark S&P/ASX 200 [ASX:XJO] index gains of less than 1%. Meanwhile, emerging markets have powered ahead.
There are 2,158 stocks listed on the Australian Securities Exchange. It doesn’t matter if the benchmark is going up, down or sideways…there are always opportunities for an eagle-eyed speculator.
Keep your eyes peeled. You can find prospects in any market that will make you rethink the value of stubbornly holding on to underperforming investments.
But don’t throw the baby out with the bath water. Before you spring clean your portfolio, you need to analyse the stocks as though you’re buying a new stock. Sometimes the reason for holding a stock has changed. Just because the stock didn’t meet your initial expectations doesn’t mean it can’t in the future, especially if the company is working on a new plan.
Just look at the Australian Small-Cap Investigator stock that has exploded by 575% since Kris tipped it two years ago.
Back then, this energy company focused on developing a project in Queensland. It didn’t pan out as planned, and the stock lost 50% of its value over the following year.
But that’s when it shifted focus to a new project in the US. The scheme is powering ahead, and the share price has risen to life-changing levels.
In fact, one of our subscribers is sitting on a gain of more than 1,000% since he bought in well below our buy-up-to price.
Here’s the secret to making those kind of dizzy returns.
Think critically about your investments. Sometimes all it can take is a bit of spring-cleaning to get your profits growing.
So take inventory, cut the clutter, and get active!
Tim Dohrmann+
Small-Cap Analyst, Australian Small-Cap Investigator
The post Are you an Investment Hoarder? appeared first on Stock Market News, Finance and Investments | Money Morning Australia.
