In my book, I repeat a story told by Fred C.
Kelly, the author of Why You Win or Lose,
that provides the best example I know of how the typical investor
procrastinates when it comes to making a selling decision. A man has rigged up
a turkey trap with a trail of corn leading into a big box with a hinged door.
The man holds a long piece of twine, connected to the door, that he can use to
pull the door shut once enough turkeys have wandered into the box. However,
once he shuts the door, he can't open it again without going back to the box,
which would scare away any turkeys lurking on the outside.
One day, he had a dozen turkeys in his
box. Then one walked out, leaving eleven. "I should have pulled the string
when there were twelve inside," he thought, "but maybe if I wait, he
will walk back in." While he was waiting for his twelfth turkey to return,
two more turkeys walked out. "I should have been satisfied with the
eleven," he thought. "If just one of them walks back, I will pull the
string." While he was waiting, three more turkeys walked out. Eventually,
he was left empty-handed. His problem was that he couldn’t give up the idea
that some of the original turkeys would return. This is the attitude of the
typical investor who can't bring themselves to sell at a loss. They keep expecting
the stock to recover. The moral is: To reduce
your stock market risk, stop counting turkeys!
Markets. Business. Life. by LoneRngr (screen name) is licensed under a Creative Commons Attribution 2.5 Canada License. Based on a work at marketsbusinesslife.blogspot.com.Permissions beyond the scope of this license may be available at http://marketsbusinesslife.blogspot.com/.
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