If you are going to be a winner in the stock market you must have emotional maturity. I did not say you had to be smart or know how to pick stocks and mutual funds.
Once someone buys a stock or mutual fund he immediately seems to have a love affair with it. It can become a fatal attraction that can lead to disaster.
All brokers and financial planners are taught to buy and hold no matter what happens to the price of an equity. They get married to it and hope that it will treat them well while they are together. Today about 50% of all marriages end in divorce yet people will hold on to a stock forever that has gone down waiting for it to come back so they can get out "even". In a bad marriage you never get out even.
Any time you buy a stock or mutual fund you must have an exit strategy in place or face dire consequences meaning loss of your investment. When I was a floor trader on the exchange I would buy various equities, but before I made my purchase I always knew in advance how much risk I was willing to take. My prenuptial was in place.
Here is the greatest secret to making money in the stock market. It is knowing when to sell. Always figure you will have a loss until you see it go up and from then on your primary purpose is to keep the profit you have made. Never give back profits. If you become emotionally tied to any stock or fund it will definitely come back to bite you.
In 1998 you could have bought Janus 20, one of the largest and best known mutual funds, for $40 per share and gleefully watched it go up to $93. Today it is selling for $35. That love affair has cost someone money. If the investor had looked at that mutual fund as just another piece of paper to hold as long as the principal was appreciating he would have been dollars ahead. Brokers and financial planners foster this kind of immature thinking because they know they might upset the client if they told him to sell his dearly beloved shares.
Every professional trader I know would not subscribe to the long haul theory. That is the death of a retirement account. So many people buy a stock and refuse to sell it for less than they paid for it. Would it not have been better to have taken a small loss and had that money to invest in a better situation?
The immature investor is willing to take a big loss rather than a small one. It takes fortitude to be able to sell out of a losing position. When you learn this lesson you will become wealthy.