Full Episode
Some of the biggest mistakes investors make aren't the stocks they buy, they're the ones they sell. We're reflecting on past selling missteps today on Motley Fool Money. It's Tuesday, November 25th. Welcome to Motley Fool Money.
I'm your host, Emily Flippen, and today I'm joined by Fool analysts Jason Hall and Jess Santoro to discuss one of the most dangerous things investors can do, selling good companies too soon. Today, we're going to be looking back at some of the Rule Breaker and Stock Advisor recommendations that we sold that went on to become 5, 10, and even 100 baggers.
to hopefully help you, our listeners, build a healthier mindset around when to sell, when not to, and why buy and hold investing still usually wins out. Jason, I want to start big picture here. If you look back at many of our full scorecards, we've had some amazing winners and, of course, some absolutely brutal mistakes.
And many of these mistakes, in my opinion, the worst ones are the ones that we sell, right? What is it about selling that is so emotionally tempting to investors, even those like us that claim to be very long-term?
So as investors, we try to be high-minded. We have these financial goals, long-term and short-term, that we're trying to reach. But we're also humans, and humans are messy. We're just not wired to really be good at investing. Fear and greed are exceptionally strong emotions. We search for confirmation bias.
And there's always a data point that feeds what you want to believe to be true, whether it's actually the right thing to act on or not. If we own a great stock or... Maybe we just get lucky and we buy a stock and it doubles. Those old tropes start to sound smart. It's house money. I'm going to lock in my profits.
Now, if we own a stock that falls in value, again, this is like that meat sack part of us in our brain that we don't really always understand that we have to fight against. The value of a stock going down hurts more than a stock going up feels good. They've done studies and looked at our brains and our pain centers actually fire when we perceive that we've lost money.
So often we sell in both cases. In the case of a stock that's falling, we sell to make the pain stop. And then the stock that's gone up in value, we sell to avoid the imagined future pain when the stock is inevitably going to fall in value again.
Yeah, in my experience, investors always have this process and usually determine that their risk tolerance is higher than what it actually is, and it's not until you're sitting on a lot of unexpected losses that investors realize, oh, no, maybe I wasn't as risk tolerant, or I am more risk adverse than I gave myself credit for. This is true for all of us.
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