Lock It In

I might take a lot of heat for writing this, but I’m going to write it anyway. If you’ve made life changing money in one or more of the high flying stocks this year, it’s time to lock in some gains.

When I read about investors making millions on Tesla in the Wall Street Journal, I get nervous. I am also insanely happy for their good fortune. There is no greater luck than winning the lottery. It is not supposed to be this easy to make money in the stock market. Preserve and grow capital yes, but outright make a fortune? No. Money made this easily can be lost in the blink of an eye.

Morgan Housel wrote this in his best selling book, The Psychology of Money:

There are a million ways to get wealthy, and plenty of books on how to do so.

But there’s only one way to stay wealthy: some combination of frugality and paranoia.

And that’s a topic we don’t discuss enough.

Morgan goes on to describe how Jesse Livermore, known as the greatest trader on Earth in the early 20th century, made and lost several billion dollar fortunes in his lifetime. He never locked in his gains, never diversified, never took money off the gambling table. Although he was once the wealthiest man in the world, Livermore eventually took his own life. He died in debt, worthless.

Whatever you think you know, that the rest of the world doesn’t know, about Tesla, Etsy, Nvidia, Paypal, or any of the other winners this year, it doesn’t matter. You’ve made the kind of return most investors will only dream about. Take some money off the table. It doesn’t matter if the stock keeps going up from here. You can still participate with less of your money at risk.  Lock it in. Secure the win.

You may be worried about the regret you will feel watching the stock go higher after you sell. Believe me, the pain of watching your gains disappear is worse. You don’t need to top tick this winner because you’ve already won. Don’t get greedy, get nervous. You can still participate in the upside by keeping a smaller position. There’s no need to bet the house.

Now, let’s talk about what comes next. Like an addict chasing that first high, you are going to be underwhelmed by all of your future investments. You will, most likely, never repeat the success you’ve had this year. Gambling is fun when you win. Investing is boring all the time. The good news is that you can keep the fun alive in a small trading account. The trick is to keep your trading account small enough that a complete loss won’t change your lifestyle and large enough to keep you entertained.

Congratulations, you have beat the odds and made a fortune trading stocks. My greatest wish for you is that you will have the humility to realize how lucky you are and lock in those gains.


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