A reader emailed me lamenting that he has a habit of selling stocks too early and he gave two examples of nice trades but with a lot left on the table.

First thing would be that regardless of your strategy you will not top tick too many stocks on the way out, it just isn’t realistic so you have to deal with that sufficiently so that you don’t second guess everything you do. This reader is much more of a trader than I am but it seems to me that if you are interested in short time periods for holding a stock you probably should define an exit point above and below the entry price and then stick to it. If you set an upside target of 20% for two months and you get it, I think you just need to it take, be happy, and move on.

It is possible this person is not a trader but gets shaken out when he gets a big move that goes his way. If so then this person needs to change something but I am not sure what. Maybe when they get the urge to sell in this scenario they should only sell half. The two examples he gave do not lend themselves to stop orders very well, in my opinion, but that could be an option too.

Realistically over a lengthy time period (maybe not that lengthy) most investors would look back at hopefully a lot stock picks that have done fairly well, some that probably have not done much of anything and few that for one reason or another are down. Some could be down because they are counter strategies of some sort, some could be good holds but in the wrong sector and some could be down for the simple fact you got it wrong.

Having stocks that are down for any of these three reasons is normal. If you have too many that are down there might be a problem. The problem could be stock selection but it also could be the result of big bets in the wrong part of the market. For example anyone who has made a big bet on discretionary stocks this year is probably struggling versus the market.

People get hung up when something goes down which I think is a focus on the wrong thing. If a portfolio has a 10% return in a year, some stocks will do better than the 10% and some will lag. You can’t know ahead of time which will be the one that goes up 50% which why a diversified portfolio is a relatively easy path.

Last 5 posts by Roger Nusbaum

• The Big Picture for the Week of November 15, 2009 - November 14th, 2009
• Process Drilldown - October 23rd, 2009
• Sunday Morning Coffee 10-18-09 - October 18th, 2009
• A Little Followup From This Morning - October 8th, 2009
• Wednesday Roundup - October 7th, 2009