Talking kills....... your portfolio!

Even though I'm starting to post to the blog again.... this time around some things are gonna be different!! The main thing is that I will no longer post my trades on the blog... and I will tell you my reasoning for this.

Since the last post and the loss of the BIDU trade, I' ve done much self reflection and analysis of the trade. Since then I've read many books on behavioral finance which although seems to be a buzz-word these days, is a very interesting topic on which I will post more details later.

The focus of behavioral investing/finance is that we're all human and as humans our brains work a certain way.... a sort of "snakes = danger" kind of behavioral pre-programming, if you will. The point is that some of these pre-programmed behaviors is actually counter intuitive and work against you in the world of today and especially in the world of investments and trading.

One main topic of behavioral finance is the confirmation bias. This is when you have bought a stock based on whatever reason you had... good or bad! Once you have a position in it you are inclined to talk about it. The more you talk about it, the more you convince yourself of your reasons, and the more emotionally attached you get to it.

For example, a typical convo could go like this:

I ask,"so what are you holding these days?"

You: "I just went long RIMM!"

Me: "I don't know, the market keeps beating it down."

You: "I've done my research, it's undervalued, it has great products, everyone has a Blackberry and the PlayBook is gonna blow iPad outta the water!"

This seems like a pretty harmless convo right? WRONG!!!

You may not think about it, but your mind has just attached a bit of emotional value to this particular investment/trade!! More that justifying it to your friend, you have justified it to yourself... and this is the most dangerous thing to do.

Through more conversations you will attach more emotional value to it and it becomes that much harder to sell if you're wrong about the decision and its time to cut your losses and move on... because you now deeply believe your decision was right, why else would you explain it to everyone?!... selling at a loss becomes a hit to your self-esteem and we as humans will do anything to avoid that.... including holding a trade way past the place where you KNOW you shouldn't be holding.

So this is now one of my trading rules.... "Never discuss open positions"...

This way when it comes down to selling, my mind is clear and unattached from the position. My advice to every trader out there is to avoid telling friends, family, or anyone for that matter about open positions and reasons for your trade.

More on this interesting topic later...