I guess you can add this blog, along with the others I have written, under the category “trader psychology”.
I think a lot, I am a thinker! And this thought came during one of my forever happening thinking sessions.
I am not sure if you’re aware but Electric Car Maker, Tesla (TSLA) is up over 2000%.... YES 2000% since IPO-ing at $17 in 2010. To put that into perspective; if you invested $10,000 in this company when it IPO-ed and left your money in Tesla; that 10k is now north of a quarter of a million dollars ($250,000).
If you had 50k laying around and invested in Tesla’s IPO, you’d be a millionaire right now!
The point of the blog isn’t to make you feel bad about missing this gravy train but it’s to ask you; would you have had the discipline to remain in this trade through all the ups and downs?
Hindsight can be a sick and twisted game to traders/investors like myself. I mean; why wasn’t I in this trade from the beginning!
I know I am not the only one that think like this; finance twitter is filled with a bunch of; “why didn’t I’s”.
So; like I asked traders last week, “would you take trade #17 without hesitation”; I am asking folks now, “would you have been able to withstand the ups and downs on your way to riches?”
Let’s pull out some examples to further illustrate what I am talking about.
Let’s say you got into Tesla during its early days and in October/2013, while Tesla's stock was trading at $194.23; you had $10,000 worth of stock.
You left your account alone for 30 days; come back and the stock is now trading at $116.10. Your account is no longer $10,000 but it is now $6,000. You’ve lost $4k.
At 6K, do you preserve what you have left or do you continue to ride it out?
Let’s say you’re a ride or die and you stick it out.
It would take you well over a year (365 days) to get your account back up to 10K, before going on to hit $15,000 in September of 2014.
However; a few months later…
March of 2015 your account is back under… …you’re at $9,750.
What would you do then? Would you remain in the trade?
You started with 10k, dropped to 6k, back up to 15k, now you’re under 10k. Are you still in the trade?
Good! You’re a trooper; let’s see what your account would have done throughout Tesla’s ride to 2000+%.
As you can see; stocks do not go up in a straight line. The drawdowns are fierce!!! From Sept/14-Feb/16; you went from 15k to 7k.
April/16-Dec/16 your account went from 14k to 9k. These are sizeable drawdowns but par for the course.
It’s a necessary ‘evil’.
I won’t ask you any closing questions but I will leave you with my last two statements:
You want that 2000% return? You will experience, “sizeable drawdowns…it’s a necessary evil”.
Good, Bad or Ugly, comment below.