Discretionary stock picking is a popular topic to discuss or read about. Making money in the markets, especially at the individual stock level, is appealing and there’s no shortage of articles or other media outlets that fuel investors’ desire to find the next hot stock. The majority of content is focused on what to buy. While what to buy is an entertaining topic, it’s only one third of the battle. The other two thirds are just as important and those would be how much to buy (position sizing) and when to sell.
Being consistently good requires sound decisions on all three dimensions. Think about that – that’s extremely difficult – why else do you think Vanguard absorbs a gazillion dollars every month?
Successfully creating wealth through individual stocks requires much more than finding what stocks to buy. Knowing how much of it to buy and when to sell is just as important. What’s in the middle of investors and sound decisions on all three fronts, is behavioral issues. We are advocates for a rules-based approach to investing. We choose not to rely on our own discretion. Rules, supported with evidence, dramatically improve our ability to be consistent in application and reduce the pitfalls of cognitive limitations.
No matter how you approach the stock market be sure you win bigger than you lose – ultimately that’s what matters. Simple Beats Complex.