Do you know that it is possible to be married to a stock or any other asset?
A good example of this is Ron Baron, one of the best-known investors, who is a leading investor in Tesla. Baron invested $400 million in Tesla in 2014. At Tesla’s peak, Baron’s investment in Tesla was worth over $5 billion. He rarely sells the stock and often buys it in the dip.
It is also possible to be married to a stock as a day trader. This is where you are habitually trading one currency pair or a stock over time. Perhaps you have made substantial money trading the asset and you decide to stick with it.
In this article, we will look at why you should never be married to a stock or any other asset.
Married to a stock meaning
The idea of being married to a stock is a relatively simple one. It refers to a situation where you get addicted to a single stock or any other stock.
In most cases, people are married to a stock because of its strong historical performance. For example, in the case of Ron Barron, he has been nearly married to Tesla because of its strong historical performance.
Another good example of an investor who has been married to a stock is Warren Buffett, who has been married to Coca-Cola for decades. He initially bought Coca-Cola in the 1980s and he still holds it to this day. During this time, he has experienced substantial returns as Coca-Cola’s market cap has surged to over $260 billion.
Some traders are also married to certain stocks. We have seen many day traders who trade just a single stock or a group of them. While this strategy can work well over time, the reality is that it sees them miss more market opportunities especially when trading conditions change.
Why get married to a stock?
A common question is why should a trader or investor be married to a stock. There are several reasons why this can happen.
They believe it is undervalued
First, investors are often married to a stock because they believe that it is undervalued. Investors who do this believe that the broader market is undervaluing the company. As a result, they believe that the stock will continue doing well over time as the real value is reflected in the market.
Warren Buffett has always invested in Coca-Cola because he believes that investors are undervaluing the company.
They believe in its opportunity
The second reason why investors are married to a stock is that they believe that it has a strong opportunity in the financial market.
A good example of this is again Ron Baron, who believes that the company has an excellent opportunity to succeed in the future.
He expects that it will be the dominant player in the electric vehicle industry even as competition from the likes of BMW and Nio rises.
The other reason why you could be married to a stock is because of its historical performance. This is where you have been extremely successful over time investing in a stock and you decide to hold it for a long time.
For example, if a stock has made you a lot of money historically, you may be afraid of letting it go.
Why you should not be married to a stock
There are many reasons why you should not be married to a stock. Let’s analyze some of the top reasons why you should never do this.
You can miss alternatives
First, you should not be married to a stock because it can let you miss the alternatives. For example, if you are solely focused on an EV company like Tesla, you can miss the opportunity of investing in other equally good companies in the industry.
As a day trader, if you are focused on a single stock, you can miss opportunities, especially when the stock you are married to is in a tight range. Therefore, widening your scope can help you a great deal become a better trader.
Related » FOMO in trading
Wrong entry points
At times, when you are married to a stock, there is a likelihood that you will have the wrong entry points. In this case, you will often buy a stock even when its performance is not doing well.
Also, you could even buy it at the top even when it is extremely overvalued or overbought. We have seen many well-known investors buy assets that are clearly overvalued.
Related » The Best Entry and Exit Indicators
Meanwhile, being married to a stock can lead to overexposure, which is often a bad thing. For example, we have seen many well-known traders whose portfolios are inclined to certain industries simply because they are in love with certain stocks.
For example, Bill Ackman’s portfolio is made up of Chipotle Mexican Grill (CMG). While the stock has done well over time, the risk is that a major issue can lead to a major underperformance. For most investors, it is highly recommended to have a balanced portfolio.
The other risk for being married to a stock is that you will often make biased decisions. For example, at times, for investors who believe in the future of electric vehicles, it is often almost impossible to convince them against buying EV companies.
How to overcome being married to a stock
There are several strategies that will help you avoid being married to a stock. Some of them are:
- Have a clear trading strategy – You should have a good trading strategy that is broad-based. You should take more time to have a good trading plan.
- Use your trading journal – A good trading journal can help you become a good trader by listing the key decisions that you make.
- Use risk management strategies – You should always have the best risk-management strategies in the market. This includes having a balanced portfolio and having a stop-loss for all your trades.
- Identifying top movers – The next thing to ensure is to focus on top movers in the market and identify key opportunities.
In this article, we have looked at the key concept known as being married to a stock. We have also explained why you should always avoid being too much addicted too much one stock, currency, or commodity.
External useful resources
- What stock did you hold for too long? Was it worth holding? – Quora