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News Link • Economy - Economics USA

How to Avoid a Leading Cause of Portfolio Wipeouts

• International Man by Lobo Tiggre

I've just posted my third closed trade for the public to see: Pretium Resources (PVG). This wasn't a big win for me. After disappointing results from the company, I was just happy to get all of my money back.

Fortunately, I did bag a big win right out of the gate in 2018. There was another sideways trade as well, resulting in an average gain of about 20% and a 16.4% ROI. You can see all my closed trades on my track record page.

Why tell you this?

Well, it's instructive for several reasons…

First, note that Pretium was a high-profile speculation for me. It's the one stock in my portfolio I disclosed to the general public. Back in my Casey Research days, I said numerous times that I thought Pretium was a great speculation, and that if I were free to own the stock, I would buy shares. So when I became an independent speculator, it was the first stock I bought. I am well known for having defended the company—not once, but twice—when it was attacked by dishonest short sellers.

And now I'm out.

I have several reasons for this, but it boils down to the company struggling to deliver consistent output at its flagship Brucejack gold mine. The details aren't important to my point today.

Whether or not I made the right call doesn't even matter.

The key point is that when results disappointed, I did not let pride, hope, or fear of negative publicity stop me from selling.

You see, so many investors become cheerleaders for the stocks they own that it blinds them to the negatives that always appear. It's one thing to acknowledge the bad with the good and defend a company that has more positives than negatives to its story. It's quite another to refuse to see important negatives and stay in a bad trade until it destroys one's capital.

The great danger here is what psychologists call "confirmation bias."

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