I’ve learned that you have to be very thick-skinned to be a trader or a blogger. Many of my blogs are lifted directly from the pages of my old trading journals, and as I write about these former trades, I am very conscious not to sugar-coat it or make it look better than it actually was.
This week, I’ll describe how I slipped right into a rather expensive trading mistake. At the same time, I’ll also tell you that I paid my tuition to the market, that I only did this misstep once and that I’ve learned from this mistake. I’ll explain what happened in detail, but let me also add that despite this specific instance of being tutored in the mutual fund arena, the lesson has been carried over to the stock arena and ETF arena as well. More on that later.
Let me take you back to the years 2003 – 2006. The market had a strong, 85%-plus run, and in April 2006, it hit a high followed by a normal 8% pullback. By late October of 2006, it took out the April high and was moving strongly into November. I fell prey to an overly-excited state of mind and made a bad, impulsive decision during open market hours. Normally, my strategizing is done when the markets are closed, which I’ve found offers me more clarity and tension-free reviews of my data points, information sources and charts. On that day, my mistake was rushing a sizeable mutual fund buy without doing my normal due diligence and preparation. Then pow… four days later, I received a humongous distribution which resulted in a pretty nice gift for Uncle Sam. By investing at the wrong moment, I essentially was handed back a large portion of my investment as taxable capital gains with an untended large tax liability.
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