How to Make Change Even When It Feels Wrong

We all have difficulty with change.  As an asset protection attorney I see this a lot.  It’s not atypical at all to see clients who are stuck in losing investments who hold their positions with the intention of getting out as soon as they “get back to even.”  It almost never fails, however, that one of two things occur:

1. Either the investment does not get back to even, and after a long holding period, the client chooses to exit the investment or (worse) is forced to exit the investment at the worst possible moment.
2. The investment gets back to even, and then the client chooses to continue holding it with the belief that it will appreciate in value according to the original investment objective.

Examining the Choice

There are fundamental problems with both of those typical choices.  In the first scenario, you’ve sacrificed time and the value of your money over time, not to mention the capital loss when the investment is finally exited.  In short, the opportunity cost is very significant.

In the second typical scenario, the fallacy is that once you’re back to even, the investment could continue on an upward trajectory.  That may or may not be true, but you have to realize (i) that the investment has already made an upward move (can it continue?), and (ii) why is your psychological stance changing from “just get me back to even” to one that smacks of greed?

The answer is to that question is that losing feels psychologically worse than winning feels good.  That means that almost all of us with consciously seek to alleviate pain (“just get me back to even”) . . . until that emotion is gone.  At the point the pain disappears, however, we seek a new emotion–the joy of winning.  The problem is that it will take a lot more winning to induce an emotional response, so much so that it will be almost impossible achieve and you risk losing again before getting to your upside objective.

Make The Choice That Seems Unnatural

As odd as it sounds, often the best thing to do is admit when an investment has gone bad and cut losses as quickly as possible.  Some of the best traders on Wall Street have echoed this advice: “If a trade doesn’t feel right from the start, get out . . . even if you’re down.”  The point is that your time is too valuable to waste worrying about an investment.

If it doesn’t feel right or if it’s a losing trade that doesn’t look to make a very quick turnaround, don’t torture yourself.  Make a change, and get into an investment that you feel right about!