Time to Reshuffle the Deck
There is always the temptation to hold on to losing trades, but it's OK to fold. Let's review some of my own recent winners and losers.
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My mentor once told me that it’s OK to be wrong, as long as you don’t stay wrong. It’s time to erase a few mistakes.
Sometimes comfort can be found in confirmation. On Thursday, it was reported that several analysts at Citi are comparing the current market environment to 1999. When asked whether AI stocks were in a bubble, Christopher Danely of Citi answered, “Yes, but it could last into 2025.”
That answer dovetails nicely with my own theory that the Best is Yet to Come.
One month ago, based on an A-B-C-D pattern, we set our target for the S&P 500 at 5375. Since that time, the large-cap index has gained 150 points. Many major investment houses have raised their targets as well.
While the upward momentum appears to be slowing, the 5375 target -- represented by point D on the chart - remains intact.
Is it possible to be right about the market but wrong about individual stocks? Since stocks tend to run in packs, forming bull and bear markets, you’d think that going long in a bull market would give one a natural advantage.
However, in a market that has risen due to a handful of mega-cap tech stocks, it’s easy to be wrong about an individual name that doesn’t fall into that category.
We’ve had our share of recent winners. Stellantis STLA has climbed 33% since it was first recommended. Spotify SPOT has gained over 25% in the less than two months since this article first appeared. Disney DIS is up nearly 15% since we wrote about it on January 29.
Meanwhile, recent trades in Tesla TSLA, SoFi SOFI, and WW International WW have failed to pan out. My recent Tesla buy in particular was too early. I was wrong, and that became apparent very quickly.
Consider holding your winners, and closing your losers. This is the opposite of the typical retail trader mentality. The retail trader hangs in there, hoping the tide will turn.
There is always the temptation to hold on to losing trades, in the hope that tomorrow will bring a different result. Instead of trying to draw to an inside straight, why not reshuffle the deck?
What do we do with our losing trades? We don’t raise the bet; instead, we fold. It’s just like my mentor said: It’s OK to be wrong, as long as you don’t stay wrong.
At the time of publication, Ponsi was long STLA, SPOT and DIS.
