Sometimes I get tiny cuts on my hand or foot. I don’t know how they happen. Although these cuts may bleed slightly, they heal quickly enough that I don’t pay much attention. Our body has a miraculous blood clotting process that stops the cuts from bleeding more, as we have learned in biology. After the cuts have healed completely, the body will dissolve any blood clots.
Clots that aren’t dissolved naturally can block your arteries, posing serious risk. A blood clot within the heart can lead to a cardiac arrest, and a blood vessel clot in your brain could lead to stroke.
A stock portfolio with a “blood clot” is a sign of imminent risk. You could lose your hard-earned cash in the stock exchange if you ignore it.
These are the three signs that your portfolio may be losing money.
1. Your portfolio is celebrity-like
An celebrity-like portfolio is simply one that buys the same stocks as guru investors such as Warren Buffett, George Soros and Seth Klarman, Edward Lampert and Jean-Marie Evillard.
There is nothing that could go wrong. These guys are among the best in business, and they will pick the right stocks nine out of ten times.
These renowned investors are able to make a lot of money with their stock picks. You may not realize that these renowned investors possess intangible qualities such as emotional stability or patience that are difficult to duplicate.
Buffett, for example, bought Walmart stock in 2005 at a price below $50 Walmart stock traded sideways for three years. Imagine holding onto a stock for three consecutive years without any returns. This would be a nightmare for most investors, except Warren Buffett. After a long wait Walmart reached $87 in 2016, before Berkshire Hathaway decided to sell its entire stake in Walmart while Amazon continued its march in the retail sector.
Buffett was Walmart’s CEO for over 10 years before he decided to leave. But how long can they wait before he leaves? Warren Buffett may have a different investment time frame than you. You might have a five year time horizon while he may have a stock with a 30-year life expectancy. You might be able copy his portfolio but you would not know his expectations for each investment.
Each investor is different in terms of risk appetite, expectations of returns and time horizons. Portfolios cannot be duplicated.
2. You’re a ‘stockoholic’
One time, I was shocked by a woman’s list of investments. It was almost as long as my credit card bill, except that each stock (stocks) represented at least a three-, four- or five-figure sum.
How did she manage to own so many stocks? Although you wouldn’t believe it, she said that she would purchase a stock she liked whenever she had extra cash or if someone recommended one to her.
Steve Jobs, the late Steve Jobs, once stated:
People think that focus means saying yes, to whatever it is you are focusing on. It’s not. It’s saying no to all the other great ideas. .”
Steve Jobs is right, and this applies to investing. Stockoholics are likely to face many problems:
- It’s difficult to keep track of so many stocks, that it defeats the purpose for investing as a near-passive source income.
- High brokerage fees can negatively impact your overall returns. It isn’t worth investing in multiple stocks unless you have at least eight figures of assets, such as a full-time manager of a fund.
- Diversification is a way to lower risk. But is better than-diversifying. However, it doesn’t lower risk. Your portfolio will still be affected by the volatility of the stock market, even if you invest in all the stocks available.
3. You are unwilling to reduce your losses
Are you a stockbroker who is unwilling to let you cut losses on ‘junk’ stocks? My previous article – 3 Things Your Stockbroker Doesn’t Want You to Know About Penny Stocks – I told you that my friend bought Digiland in 2007 for $30. The stock crashed and she refused to accept her losses for seven years. Digiland is worth 26 Cents per share.
We hope that when mistakes are made, the tide will turn and the stock will rise again. It doesn’t work this way, according to my experience. There is a reason stocks are depressed for so long and it will likely continue that way. You are losing your chance to get your money back faster if you keep waiting.
In 2012, Courage Marine was my investment. The shipping industry was not something I had any experience with at the time. After realizing my mistake with Courage Marine I regretted it and cashed out at a loss of 30%. I reinvested the money into another stock, which made me 17% profit.
If I kept my Courage Marine mistake, my losses today would have been much greater. Instead, I took the lessons learned and cut my losses. The proceeds were used to buy a better stock. This is the key lesson: Don’t make your losses worse, but multiply your winners!