The old adage says that patience is a virtue, but in the investment world this is not always the case. Never-Sell Sam is an example of someone with a little too much patience. When I first met Sam, he had quite a portfolio. The shocking thing was all his holdings were concentrated in just one company.
Sam got lucky. His investment kept doubling and tripling to almost $2 million. At 55 years old, he is still determined to hold onto his investment, even though most of his net worth is tied up in one company.
Sam has good reasons to stick with what he has. He never experienced a significant loss and the company sends out regular newsletters with positive forecasts for the future. But Sam doesn’t realize that stocks don’t go up continuously.
If you’re a Never-Sell Sam type, you should consider some rotation. There are techniques, such as Good Til’ Canceled (GTC), that force you to rotate investments. Of course, you should never sell for the sake of selling, but you should review your portfolio on a regular basis and consider new investments.
One fund people like Sam may want to consider is a closed-end mutual fund. These funds can grow through the continuous sale of shares. This security has a redemption date and value guaranteed by the fund.
On the other side of the spectrum is Trader Ted. Ted is an investor who enjoys the fast pace and the challenge the market provides. When Ted makes a profit, he feels like he’s outsmarted the other guy.
Ted lost money in the market because he would buy stocks that had made large gains in a short period of time. Then, if they didn’t grow within a certain period of time, he would sell them for no gain or even a small loss.
There are three things Trader Teds should do to increase their chances of making money. First, make sure commissions paid are on the low-end, because the margin of profit in trading can be quite slender. Second, stay away from options. They are a high-risk security that is only profitable if several factors play out correctly. Third, concentrate trades within one area or industry.
There’s no doubt that Never-Sell Sams and Trader Teds can learn a lot from each other. You should have a fair amount of patience, not too much or too little, to be a successful investor.
Part two will introduce Big-Killing Burt and Tax-Advantaged Tom, two personalities that have similar goals, but different methods of reaching them. After reading all six parts of this series, you should have a better understanding of what type of investor you are and how to maximize your investment results.
