Knowing the Why - Provides the Answer!
Don’t look now, but momentum seems to be slowing. The last week of trading has been a blur for me as the jump to the upside started with a gap higher and then added on from there. Like most sprints, you can’t keep going at that pace. This is where we find ourselves now and it brings us to another decision point for managing our money. Remember, “what do you want?” If not read yesterday’s post.
Decision making is all about knowing what you want. If you know the answer then making decisions for accomplishing it is easy. If you fail to have a good handle on what you are trying to accomplish then you will not like this post. I am asked almost every day what I think about… Fill in the blank with a stock, the market, the economy or something to do with investing. What I think versus how I manage my money are two different things. Right now the question in my mind is, “if momentum is fading, do I take profits or wait out the pullback? The answer is simply defined by what I want.
In an effort to share with you how I make these decision let’s put this in motion. I have five plays (positions) I put money in to take advantage of this bounce off support (Monday, July 13th). We have had seven nice days of upside returns and now the momentum is tired and due for a short term pullback. First, what did I want from these five investments and why? Simply put I was trying to make $5,000 to pay for a summer vacation with my family to enjoy my 50th birthday. I bought five positions with a target of making $1000 per position. Yesterday at the close they were up $7,200.
Second, refer to the goal, or what I wanted, the why (make $5k). In other words I have accomplished my why! Decision? For some reason the theme to Jeopardy is running through my mind. In case your wandering the answer is, take the profit and go on vacation.
When you know the why, the decision process becomes much easier. I know you can give me all kinds of reasons I should keep the positions and what may happen in the future, etc. etc. etc. But, remember investing is about knowing what you want from your money and then accomplishing it. Too often we start to over analyze our decisions. We introduce new variables that weren’t present when we started the mission. Don’t over complicate the process of managing money. Remember, the why determines the how, which in turn accomplishes the goal and we go on with our happy lives.
It is important to note this is not all of my money, nor is this the only objective I have for my money or my life and lifestyle. It is an example of how to make decisions towards managing money. If you are trying to decide how to handle this run up in the market short term ask yourself the why question. Then make a decision of what to do with your portfolio and each position.
I received and email on Monday asking a 401k allocation question. “Should I sell my bonds and buy stocks?” You know the question, why did you buy bonds in your 401k? Have you accomplished that goal? What are you trying to accomplish now and why? The why question is a powerful tool for money management. It defines what you want from your money and why. These answers keep me from making bad decisions. In fact, it keeps me out of trouble all the time and more importantly it makes the decision process a whole lot easier. Remember, keep it so simple, you can do it!
Have a good day investing.
