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While the prospects for this ultimately taking place are quite good, who knows how much I may be simply telling myself a story to justify going down with the ship? And I won't even mention the lost opportunity costhow else my remaining capital could be working for me. |
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Update: I was right! In February 2000, Pairgain agreed to be acquired by ADC Telecom. Recovering my investment and maybe even making a profit now appear quite promising. |
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Afraid to assault the ego. The psychological theory for needing to reconcile information that is inconsistent with our self-concept is called cognitive dissonance. This theory maintains that we want to reduce any dissonant information that clashes with a positive belief we hold about ourselves. |
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So, the acceptance that I made a poor judgment by holding the stock too long is dissonant with my belief that I am a good stock picker. I reduce this dissonance by telling myself it will turn out all right, that I didn't really make such a lousy decision. But, of course, I did, at least in regard to holding too long. Reducing dissonance, then, is a way we can accept the information that is inconsistent without having to change the positive belief or end up pulling our hair out. |
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Regarding the first part of the rationalization (previously seeing the stock as a winner), I traded Pairgain numerous times in the mid-1990s, when it was a high-flying tech stock that enjoyed popular analyst appeal, good momentum, and the future for the company's technology looked bright. |
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Once, with perfect timing around a positive news report and holding only a few hundred shares, I made $3000 in two days. I have made what for me is a good deal of money in both short- and medium-term trades of this stock. In fact, in terms of profits made, it ranks in the top five stocks of everything I have ever traded. |
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Because I felt a certain affinity for the company, which happens to be headquartered very close to my office, I didn't let go when management began to make some poor decisions, the stock lost favor, and the price began to shrivel. |
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One of the benefits for those who try day trading is that, if they are to survive, they must learn how to enter and exit positions quickly. They are forced to learn to sell a trade that has gone against them before it costs them too much money. They can then apply this ability to let go of a position quickly should they decide to hold |
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