Tuesday, April 1, 2014

How stress and life can encroach into your portfolio

Its no secret that I have been posting infrequently as of late. No the blog isn't dying. Yes I am still around. However, instead of leaving it just at that I thought that discussion of why I'm posting less recently would be a useful topic.

At work I was on a team of 5 people. We are down to 2 of us as 3 others have moved to different teams and management has been slow in rehiring. The workload has staid the same and the other guy has some chronic health problems and is often out 1 day of the week. We also merged with a team of 6 that is also understaffed. I applied for and got a promotion as the lead over it all. I have no idea what those other 6 does but am no responsible for them now.
I work in I.T. and have to renew a certification by the end of April or I lose my job. Even understaffed, its a requirement without exception. Additionally I am going to college and trying to work that into my time. To say my stress level is high is an understatement.

What does all that have to do with investing and trading? Psychology plays a big role in running a portfolio. More so than I think most people realize. You are taking your income from your day job and trying to grow it and that responsibility is yours alone. You can read blogs and get ideas from others but its your finger on that buy button on your broker's platform. If your mind is on other things can you really be sure that you fully researched this company? Perhaps you missed something during your research because your mind was on other things. Doubt can creep in and you start to second guess your existing positions on if you should stay long or switch to something else.

I've come to learn the hard way over the years to keep an eye on my mentality and psychology to make sure its not interfering with my portfolio. Its surprising sometimes how easy it is to screw up your portfolio when your focus is on something else. I've purchased call options when I wanted puts because I was mentally distracted while placing an order. So when I find myself overwhelmed I have to slow thins down portfolio wise. Cash is a valid position and times like this is a great time to just sit back and sit out a round or two of the markets. They'll always be there for when we are ready but we have to be sure that we and our portfolios will be there in the future and not blown up.

Now dividend investing seems pretty stress free. You buy a solid company and sit back and wait for the dividends to roll in so you can compound. Just look at the solid companies like Johnson & Johnson, Coca-Cola, and other stalwarts of the business world. It's easy to buy a company that will last for decades that will always increase their dividend right?
Well take a look at the historic listing of the Dow Jones. Just 10 years ago it held such solid companies as GM, Eastman Kodak, AIG, and International Paper Company. We have to be aware of survivorship bias where we look at which companies survived and ignore the ones that struggled or went out of business. Dividend investing takes a lot of time to compound in those 2%-3% yields and you may not notice you have a problem right away. Think back to 2008 and ask a person invested in Citigroup or Bank of America how many years (or decades) of dividends will be needed to make up their losses. They might well have been worried about their job and their focus was distracted on other things in their lives.

We are all human and far more than just an investor...
We are mothers with sick children in the hospital.
We are employees stuck in a crappy job thinking about how our last interview went and why won't they call to tell us how we did.
We are husbands and boyfriends going through a rough patch in a relationship.
And yes, we are investors with our finger on the mouse deciding if we should click "buy" or not.

How we deal with stress in our lives can make or break a portfolio quicker then picking the right stock.

Disclaimer: The investments and trades discussed are not recommendations for others. I am not a financial planner, financial adviser, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

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