As Oscar Wilde aptly said, “Memory is the diary that we all carry with us.” It’s July 4th, and I’m coaching kids about timing and firecrackers. Not too different from coaching investors about timing and selling equities. Most grownups have learned from experience -- perhaps some more than others – that once you light a firecracker, there is a certain period of time for which it is safe to hold it before tossing it off. Exceeding the safe holding period will cause all sorts of pain.
My point is that kids have to learn this timing thing. Many will push the holding envelope and at some point be caught with an exploding firecracker in their fingers. At this point, memory comes into play. Next time, most kids will remember to toss it off sooner rather than later. By the time you are an adult, your memory tells you when to safely hold, light and toss a firecracker.
Your equities demand much the same timing. I strongly suggest you use the same timing memory for investing. Granted as you mature you begin to appreciate memory for the gift that it is because you start losing it. With diminished skills in this area, your timing will suffer and therefore your profitability as well. The best antidote to these senior moments, I believe, is threefold.
1) Repeated behavior maintains good habits. If you always put your keys in the same place, you will know where to look for them and never lose them. If you always use the same sell disciplines, the rehearsal will help transfer your actions from short-term memory to long-term memory, from irregular profits to regular profits.
2) Another powerful tool to help build and maintain memory is to write everything down. Make lists, reminders, and routines – then all you need to do is remember to look at your lists.
3) A modern version of this is how young people use their phones to take pictures and create memories. My investor-based version of this is to annotate my stock charts with text, notes and reminders.
These are simple yet effective tools to help develop and maintain your memory so you correctly time the tossing of that firecracker or the selling of that equity.
Trade well; trade with discipline!
-- Gatis Roze