Janice Dorn, MD, PhD
Neuropsychological Trading Coach
Janice Dorn, M.D., Ph.D., has been a full-time futures trader since 1994. Doctor Janice holds an M.D. in psychiatry and is board-certified by the American Board of Psychiatry and Neurology in general psychiatry and addiction psychiatry. She holds a Ph.D. in brain anatomy. A graduate of Coach University, she is a pioneer market psychiatrist and financial neurobehaviorist. Doctor Janice has written over 500 articles on the financial markets and coached over 600 traders worldwide. She is the Global Risk Strategist for Ingenieux Wealth Management Group, Sydney, Australia.
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Nobody ever lost money taking a profit…Bernard Baruch
One glorious autumn day, Peter and his wife Mary took their dog Paulie out for a walk through the local park. After a while, the elderly couple sat down on a bench to rest and watch the dog play in the dog park. Peter, who was passionate about the stock market, immediately took out the paper and thumbed through to the financial pages. Mary was used to this, so she really didn’t mind that he ignored her. After all, the money that Peter was investing was both of theirs, and she knew that reading those pages with all the “funny numbers” on them was part and parcel of was Peter was doing to help grow their meager retirement account, now that they were both subsisting on Social Security.
Peter stared intently at one page of the newspaper for what seemed to be an eternity. Then, his face broke into a huge smile, and he turned to Mary and put his arm around her.
This is the conversation that followed:
Peter: Honey, do you remember that little stock I put half of our IRA into five years ago?
Mary: No, I don’t remember, dear. What stock was that?
Peter: I thought I told you about it. It was that great biotech company that my buddy told me about. You remember that can’t-lose stock I was talking about?
Mary: I seem to recall your mentioning something like that, but I pretty much forgot about it since you haven’t talked about it for about five years.
Peter: I remember that I told you I bought it at $15.00, and it was 50% of our IRA. What I didn’t tell you was that it went down to $6.00 about a year after I bought it.
Mary: Good Lord! You never told me that. You never told me anything about that. I guess you sold it right away, or at least before it went down so much? Why are you telling me about this when it doesn’t matter to our retirement? You got out of it and put our money to better use. I know you did that, so why are you talking about this now?
Peter: Well, my love, I didn’t want to worry you about this whole thing, so I didn’t tell you that I held on to it while it dropped to $6.00. I really didn’t want you to be concerned, because I know these things always come back and that there would be a day when I could tell you!
Mary: You mean you had that much loss in our little retirement portfolio and you never told me? Why didn’t you tell me, and why are you telling me now?
Peter: My dear Mary, I am telling you this because the stock is back at $15.00! It came back! Don’t you see me smiling and how happy I am that I didn’t sell it and just held on for the past five years?
You see what a good investor I am? I didn’t sell it. I held on, and it came back! Was I worried that I was keeping it a secret from you? Well, yes, I was. In fact, I have worried about this almost constantly for the past five years. That was one reason I had that close call with my heart last year. The doctor said it was “stress” that caused the damage to my heart and made the procedure I had to clean out my coronaries necessary. I just joked and said that it was pretty rough making ends meet and that that’s what happens, but I am much better now, so it all worked out fine.
Mary: I don’t want to upset you because of your heart. I don’t want to say anything that is going to put you into stress, but please sell the stock now so we can get out. Please? It’s been five years, and we are back where we started. On top of that, things are more and more expensive. The money we have in there has not grown at all in five years, and its value is lower. You have lost money for us and not told me. Please sell it and do something productive with our money. Please don’t go through this again!
Peter: Mary, are you out of your mind? Sell it now? This is what I have been wanting for over five years now. Why would I sell it? I am going to be right about this and you will be so proud of me!
I was right! I was right! It came back. There is no way I am going to sell now. I shouldn’t have even mentioned it. Now that you know, you will be bugging me about it every day, and I will have tons and tons of stress, and maybe something really bad will happen to my heart. So, please, Mary—just back off and let me take care of this. I know what I am doing. You see what a good investor I am.
Mary: Let’s take the dog and go home. I am getting a really bad headache. I just don’t get any of this. Our money—just sitting there for five years. No wonder you never let me see the brokerage statements or told me anything about this. I am sick. Let’s go home.
This story is both sad and unfinished, but there are many lessons in the tale of Peter and Mary. It is a true story, and I will update it for you in further Trading Wisdoms devoted to the topic of selling. Many of us have been in this same situation. We don’t want to sell because we don’t want to be proven wrong. There are hundreds of books, newsletter and articles about how to buy stocks. The mantra of Wall Street is, "Buy! Buy! Buy!" We buy on hope and sell in despair, when the pain is too much to endure. When to sell and why to sell are critical questions that each of us asks every day.
Sell is not a "four-letter word"—even though it looks like one. Selling is beautiful for many reasons. The first is that it brings profits into our accounts, which is the reason for trading. The second is that it cuts losses, thereby preserving capital and allowing us to come back and trade another day.
Trading is the only profession in the world where losing is winning. If you learn just one thing from this story, it is that taking small losses is infinitely preferable to enduring years of drawdown and suffering the emotional, physical and financial stress that comes from holding and hoping.
I will write more about when and why to sell over the coming months. For now, please think about the times you have taken profits (always nice) and those times when you have sat on losses in a state of holding and hoping. Trading is always about preserving capital, and capital is persevered by taking small losses and letting winners run.
The smell of profit is clean and sweet, whatever the source….Decimus Junius Juvenalis (Juvenal) c.55–c.130, Roman Satirical Poet
Until Next Time,
Good Trading and (Revitalized) Brain On!
Janice Dorn, M.D., Ph.D.
janice@thetradingdoctor.com
P.S. Every week, I send you a Trading Wisdom designed to make you better, smarter, more balanced traders. Today, I want to ask you, “How are you doing?” Please join me and your fellow traders at the message board and tell us which of my Trading Wisdoms have been most helpful in getting you on a path to profitable trading. How have you used my methods and insights to make big money or avoid huge pitfalls? Tell me what you think, and your favorite Trading Wisdom may be featured in my upcoming book! Stop by today!
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