How to Protect Yourself... From Yourself

I'm an unapologetic information junkie...

I can't get enough of the things I enjoy. I love reading about what's new and innovative. And I try to be on the cutting edge of my hobbies and interests.

Longtime readers know I'm a surfer and guitarist. I've been working on a degree from Berklee College of Music in my free time to hone my guitar skills. And I've spent the last couple years working on a new experimental kind of surfing called foil boarding.

Of course, I get a lot of my information fix from the markets, too...

The financial news is a never-ending supply of new information. I've spent the last two decades parsing through it on a daily basis. It has become a way of life for me. And it's how I find new and exciting ideas.

I love sharing my findings with you. But this "information junkie" thing has a dark side, too – one you must be careful to protect yourself from...

Like it or not, it means I consume a lot of "current affairs" news. This is the constant noise that comes out of the media. (Reporters are always out to write a story, after all.)

Most of it serves little purpose... It's information, not knowledge. And only a small portion of it can lead to good ideas.

You've got to wade through all of it if you're going to find the good stuff, though. It's a matter of sorting out the useful from the useless.

That's tough, especially in today's times.

There's been no shortage of current affairs to keep up with lately. It can be hard not to get caught up in it. I'm sure you know the feeling.

Even the smallest story can produce doubts like these...

  • "Should I change my strategy?"
  • "Does this latest news change how I should be allocated?"
  • "Should I sell or buy more?"

For the investor, reading the news can be an emotional roller coaster. And I need to let you in on a secret...

For most of us, it doesn't get any easier.

We've all had the experience of a single story derailing our steadfast beliefs. It's human nature. You might think you're getting tougher, but it'll still take you by surprise every time. And when you're an investor, it can lead to fatal mistakes.

It can cause you to question your well-thought-out plans. Worse, it can cause you to act on impulse – at the worst possible time.

To beat this reaction, folks say you need to harden your heart... learn to be a stone-cold investor... learn how to shut off your emotions.

I gotta tell you, that's not going to happen. It sounds good on paper, but good luck implementing it... It's impossible for most people.

I say that from my own experience. I've been sharing my best investment ideas for two decades, and even I have trouble keeping my emotions in check from time to time. That's normal.

Hardening yourself into a stone simply isn't a viable strategy. Instead, you need a solid plan to help navigate the storm of information.

For most folks, figuring out when to buy isn't the hard part. But having a proper plan for when to sell – and sticking with it – is tough.

That's why I've been a proponent of stop losses for decades. A stop loss is a predetermined point at which you know you'll sell an investment. You might decide to get out if a stock falls 25% from its highs... Or you might choose a "hard stop" at a specific price (for example, a recent low).

Having a defined point for closing an investment is an important key to success. Too many folks see a bad headline, get spooked, and sell too early. Or even worse, they see a position fall, but instead of doing something, they hold and hope. That can lead to crippling losses.

It's OK to be an information junkie. And it's OK to watch the markets closely. But you can't allow that to creep into your investment decisions.

You've got to protect yourself from yourself sometimes. Having a defined exit, through a stop loss, is a simple but effective way to do it.

Good investing,

Steve

Further Reading

"Buying stocks is easy," Steve says. "Nobody ever talks about the hard part – knowing when to sell." Planning an exit strategy is just as important as the research that motivates buying an investment in the first place. Learn more here.

"History is full of investing disasters," Vic Lederman writes. "And another major blowup is happening in front of our eyes today." Learn more about a real-life example where a simple tool could have saved investors from huge losses here: The Simplest Way to Avoid Investment Catastrophe.

Market Notes
NEW MULTIYEAR LOWS FOR THIS SINKING MALL RETAILER

Today’s chart shows a company stuck in a long-term downtrend…

As regular readers know, the retail industry is going through a transition, sometimes called the “death of retail.” More customers are shopping online, so only the best brick-and-mortar stores will survive… And retailers trapped in dying shopping malls are in big trouble. Today’s company is one such victim…

Signet Jewelers (SIG) is the parent of several retail jewelry brands, including Zales, Kay Jewelers, and Jared the Galleria of Jewelry. Signet runs a large but shrinking number of stores – about 3,300 today, mostly in shopping malls. But even as it closes stores to cut costs, its same-store sales have also dropped… They’re down 2% in the most recent quarter versus the same period last year (excluding e-commerce)… And Signet warns they could fall as much as 2.5% for the year.

As the chart shows, the market hates a shrinking business… Shares are down roughly 70% over the past year, hitting their lowest level since 2009. As customers drift away from shopping malls, Signet’s fortunes will likely continue to decline…