WHEN IT COMES TO the Kentucky Derby, the Final Four and the stock market, everybody’s got a hot tip. Most portfolio managers still focus on what to trade, not on how to trade.
Yet when I lose money in the market, it’s poor technique, not bum stock picking, that’s always to blame. Despite all the emphasis on independent research and proper due diligence, I lose money not when I’m wrong in my analysis, but when I’m undisciplined in my approach.
For example, when a stock of mine is doing well, generally speaking, I get stupid. I scour the message boards looking for praise. I comb through the headlines. I daydream about potential acquirers. I browse the online company store. I look for favorable mentions in the business press. I fall in love.
And when the stock starts to sink, and my profit begins to disappear, I foolishly listen to everything else but the market itself — despite my years of experience as a hedge-fund manager. (more…)