Wednesday, April 6, 2011

No Regrets

I was having dessert with a friend last night and for some reason, we started talking about bad decisions that we’ve made in the past. For her, it was related to decisions she has made with relationships. I stayed with her on that topic for a while but of course being the nerd I am, I eventually related it to investments, talking about risk/reward ratios and time investments, etc. lol.

Some of you might know that I went down to Sydney this weekend, met up with some of my old friends, caught up with my sister and best friend. I only realized when having dessert with this friend that I’ve been using the phrase take it easy quite a bit this past 3 days. Not only to remind myself but also my friends to relax. My best friend is having a massive headache from trying to find a job, on top of that he has girl worries as well. I guess there is really nothing wrong with worrying about relationships because, after all, is one of the biggest investments that most of us will make. Returns can be abysmal at very very high costs but if the investment turns out well then I guess we’ll have a return of what we all long for which is happiness.

I think it is perfectly normal to feel regretful of some of the decisions we’ve made and sometimes it is even okay to feel angry or upset. On hind side things always look very different. I have recently ended a fairly messy relationship and some of my friends would say I’m understating it by saying “fairly”. It baffles me that when you’re in it you lose sense of rationality or what seems to be right or wrong. When its all over, you sit down and assess the damage done and think, ahh why didn’t I pick up on this earlier. Or why have I ignored this sign? Or why didn’t I listen to this person? Etc.

I think this relates to some of the investment decisions that I’ve made in the past. Some of the worst ones I’ve made are emotionally driven. We all know our best friends fear and greed. That is why in the last 2 post I’ve talked about the importance of having a plan or an investment methodology to guide us when we are emotional. This post won’t be about those topics again because that will just be boring.

This post however, is about one emotion that we all feel when we’ve made a bad decision, regret.

See I think with a proper investment or trading methodology, we shouldn’t feel regretful. But I am of course very wrong because this emotion haunts me almost every time I buy or sell and end up in the wrong position.

That is why as traders we have to remember that decisions we make are made at the time when we have no idea what is going to happen in the future. If we did, there will be no reason for us to work for money anymore.

Sorta like getting a boyfriend or girlfriend. At that time it seemed like the correct thing to do. Maybe you make each other happy. You like spending time with each other. Things looks good, so we decide okay lets make this investment and see where it brings us. At that point in time, there was no way of telling what was going to happen. Sure we base our judgement on a few signs, maybe the colour of his or her hair or how they smelt or how they made you feel but there was no way of you telling if the investment will pay off or not. All you knew was at that time it seemed like the right thing to do.

I think that applies to my trading decisions as well. When I take a position in a company, there was no way of telling if it would go up or down. All I knew was the p/e ratio looks good, the directors seemed like they are doing their job, the moving averages looks like they are crossing, there seemed to be like a breakout and spike in volume. So all signs point to buy. Next day, it drops 25%... fuck. Thats when I start kicking myself for 3 days and 3 nights.

Someone once said to me, we plan our actions instead of the results. If our actions are planned correctly and results are favourable, good on us, but if our actions are planned right but results turn against us, bad luck.

I think to be a good trader we have to work hard to get used to making mistakes and learning from them quickly and of course not dwelling too much upon them. Regret is a feeling that we most probably cannot avoid but we most certainly can manage. Or learn how to manage.

So tell me, by leaving a comment or dropping me an email, have any of you made a decision that you’ve regretted? It does not even have to be related to investments. Something you wish you could have done differently? Have you learnt from your mistakes or are you still kicking yourself for it.

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