One of the hardest lessons to learn about investing is this: to win, you need to learn how to lose.
These past several days the market has been going down, and I was tempted to sell. Maybe you were too. I get it; losing is scary. It’s tempting to sell your investments, especially your stocks, when they are plummeting.
But that’s exactly the wrong thing to do. Sure, there are some positions you might need to get out of, the losers that have little chance of winning. But I’m not talking about those.
I’m talking about the investments you’ve researched and formed a conviction around, the great companies that you hold in your portfolio. Those are the ones you shouldn’t sell. I know. I’ve been there.
In February or March of last year, when people thought that the coronavirus was going to create a zombie apocalypse, I sold most of my Shopify position in one of my accounts. It was a big position for me. And that was a huge mistake. If I had held on, it would have been a monster gain. It would have been something someone could have retired on. But I didn’t hold on.
I wasn’t willing to lose, so I lost.
See, when the market is going down, you have to be willing to take paper losses. Those are the ones you get before you actually sell your stock to actualize your loss. Not actualizing your losses leads to a path of winning.
And, the truth is, the higher your account goes, the scarier it gets. It sounds backward, but it’s not. That’s because you have more to lose. Your account balance might be higher than it has ever been, but that’s when you’re in the most danger. Maybe your account crossed some threshold, six figures, seven figures, or whatever, and when a week like this week happens, it’s all the more tempting to sell to keep what you have left. But don’t.
The best gains aren’t made in a day. They are made in a year, five years, a decade. Hold onto the companies that are growing and innovating and dominating their industry. Don’t sell them. Add to your positions when days like these come along. And you’ll be amazed at what will happen.
You’ll gain financial freedom.