A Better Way to Think About Trading & Investing

By Gary Brode, Deep Knowledge Investing

I got a great question from a new subscriber last week.  He wanted to know if I thought he should buy the stocks currently on the DKI recommended list, or if some of the positions that had big profits should be considered a “hold”.  It’s common for large investment firms to hire performance psychologists.  Their goal is to uncover any irrational or unhelpful trading “rules” people make for themselves and replace those bad rules with more effective methods.

I’m not a performance coach or a psychologist, but I’m in my fourth decade in finance, and have identified some valuable ways of thinking about investing that both answer the above question, and which can be used to weed out future bad decisions.

Buy and Hold Are the Same Thing:

I don’t make a distinction between buy and hold.  An old mentor of mine once told me that you’re effectively buying every position you own every day.  To the extent that I could sell any position right now, he’s right.  People have a tendency to think about positions as if they have a history.  That’s not a helpful mental model.  With the exception of tax-related selling, or holding onto a winning trade for a few extra days to get long-term tax treatment, your positions have no relevant history.  It doesn’t matter what you paid for a stock and when.  The only thing that matters is whether your investment thesis is still intact at the current price of the stock.