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Minyan Mailbag: Surviving a Losing Streak

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Strategies to cope with losses, and to turn them around.

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Prof. Sadana,

I have suffered terrible losses in Cisco (CSCO), IBM (IBM), and Boeing (BA) in the last few months. It seems like anything I touch crumbles. I am totally devastated. Any thoughts on how to deal with this string of losses and rebuild my portfolio?

Thanks,
Minyan Mac


Dear Minyan Mac,

Let me offer you my sincere condolences. Anyone in this business will attest to the pain losses have caused them. Even though we are trained as investors and traders to ignore our emotions, we have no choice but to deal with them, and across their entire spectrum - there ain't no mountain high enough, and no valley deep enough, that we aren't required to cross! In a profitable trader's life, nothing's certain but taxes, death and losses.

Here are some of the things I do when faced with losing streaks:

Ask: Ask the right questions. Figure out why those losses occurred. Do you believe that the market is rigged, and that "they" are out to get you?

If so, ask the question again. Most traders blame the market or the market makers. The reality is, most of the losses stem from within our trading environment. Asking the right question transfers the responsibility for prudent trading from something you can't change(them) to something that you can change - your trading strategy/execution.

Assess: Assess your stance before the losses occurred. I'll vouch from my personal experience that some of my most devastating losing streaks occurred right after my best trading moments. I remember making a trade on Microsoft (MSFT) in the 1990s that singlehandedly catapulted my account up by 20%. What a feeling, to be handsomely rewarded for excessive risk.

And then I gave quite a bit back by subsequent poor decision-making. Feeling invincible led to the ultimate reality check in the form of losses.

Also, assess if your losses stemmed from the violation of trading rules. Maybe the position size was too large; maybe you overwrote your stop-losses. Only by pinpointing the right triggers for losses can you take steps to control those triggers.

Don't look where you fell, but where you slipped.
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No positions in stocks mentioned.

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