Open That Case!

On NBC you may have seen the game show called “Deal or No Deal” starring Howie Mandel and 26 wonderful ladies with their respective briefcases. The premise of the show is for the contestant to select random briefcases holding dollar mounts from $.01 to $1,000,000, trying to eliminate cases without picking the higher amounts. As the cases dwindle and depending on what amounts are left, the “banker” will offer the contestant a dollar amount that contestant must accept (Deal) or not accept (No Deal). If the contest chooses “No Deal”, they keep selecting cases that will either increase or decrease the banker’s offer. Pure entertainment flourishing at its finest.

The Greed That Lies Within

What I find appealing of the show is that it brings out the greed that exists in most all of us. I have seen contestant after contestant fumble their way from a sum of money that would have literally changed their life to an amount that barely made the whole experience even worth it.

My most memorable contestant was the single mom whose only goal was to win enough to pay for her son’s college education. She was cruising right along and the highest offer was well above $150,000.00; far exceeding her goal before the show. All she had to do was say “Deal” and her life would have been forever changed. She did not and ended up walking away well under $10,000. It’s a sad story, but how do you really feel sorry for somebody like that?

Are Stock Buyers Greedy?

Deal!

Relating the show to stock investors is quite easy. Many times I have had clients that have purchased a stock with the goal of making let’s say 20%. When the 20% is reached, they want to hang a little bit more to get to 30%, 40%, or maybe even 100%. The outcome is usually not pretty.

Instead of locking in the gain, we’ll watch the stock drop back to its original purchase price. Upset that they didn’t lock in the gain, they decide to wait it out until we get back to the 20% gain and then they are “definitely getting out“. Then the stock drops below the purchase price. Even further upset, the client decides to wait to hang on and wait till they can sell to break even. I think you see what direction we are heading.

Remember Your Goal

Sometimes we have to remember what our goal was in purchasing the stock. If your goal is to make 10% then that’s when you sell, no matter what. If you can’t stand to lose more than 10%, then the same rule applies. Get out when you said you would get out.  Implementing a stop loss will help prevent you from second guessing yourself.   My placing a stop, you can sell the stock at a certain price no matter what.   A cautious warning on a stop loss is that is possible for the stock to open below your stop price resulting in an unfilled order and you still holding on a stock that keeps losing money.

Can’t Control What Happens Afterwards

Sometimes the stock will go up in value after you sell it. It just happens. Do not get frustrated about what you “could have had”. It’s impossible to predict when the exact time to sell it. Be grateful that you actually made money, especially with the recent crummy market. And always remember that selling a stock at a profit, no matter how small, is a better “deal” than going home with an empty briefcase.

This was a guest post of mine on Lazy Man and Money.  Be sure to check out his blog and you can see the original article here.

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Jeff Rose is a Certified Financial Planner and co-founder of Alliance Investment Planning Group.