 By: ShortMeTina 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? Let’s recap: 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.
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