I have a loose set of rules that I use to guide my investment strategies. First and foremost is the idea that I should not worry about missed opportunities.
Many people I have spoken with regret not buying this or that sooner because they would be rich had they done so. This is more or less the idea of opportunity cost. While this may be useful in an academic setting, it is disastrous for me as an investor. The fact is that no matter what choice I make, there is nearly always a better one. I don't waste energy stressing about this kind of thing.
I don't worry about opportunities that I missed. I take as much time as needed to find and vet an investment. If it takes two weeks to read all of the annual reports, find the scuttlebutt, and get the information I need, then that is how long I spend. If the price changes in that time and makes the investment less attractive, I simply move along. There is a great investment opportunity every day of the week, I just have to find it. For example NYSE: PPDF, whatever that is, went up 15% today. I had no way to predict this so I won't feel bad about missing it. So many people stress about selling too soon or not buying sooner.
Predicting the future is impossible. Obviously we would all be filthy stinking rich if it was. My perspective is that I make the best decision I can based on the information I have. Usually I make money, sometimes I don't. But I never second guess my decisions. I learn from them. Otherwise I will never have any level of confidence in investment choices. In stead I would watch the ticker all day and agonize every time the price moves against me. Occasional swing opportunities aside, I invest for the long term. I don't care what the price is doing today, I care if the company or other asset is performing as expected. If yes I hold, if no I sell.
When GE announced the Alstrom deal, and I had time to look at the details, I sold. It didn't matter that I only made a measly 2%. What mattered was the deal clearly stank and further revealed poor company leadership. The price of GE went up at some point after I sold, but that is irrelevant. What mattered to me was the fact that GE's business was getting worse not better. So I sold and never looked back. Except the other day when I saw a news article about GE's decline which cited the Alstrom deal as one of the factors leading to the company's current situation. Immelt is leaving (and made out like a bandit) so things may improve. Note to the GE board: I guarantee, 100%, that I can do at least as good of a job running shareholder value in to the ground as Immelt did. I will even do it for a few million less!
Another example: I previously owned shares in a company called Windstream (WIN). They were not a rock solid company, but they had a tremendous dividend of around 12% when I bought them. One day I noticed the stock price had shot up something like 30%. It turns out that the company spun off its physical assets (phone lines and such) in to a REIT which was held by the parent company. I wanted to sell right away but I didn't understand the details of the restructure. After reading for a few hours I came to the conclusion that the new structure was just a sneaky way to lower the dividend without spooking investors. When I sold the massive gain following the REIT announcement had dropped down to something like 15%.
I don't regret waiting to sell, and I don't consider the extra 15% to be lost money. I didn't know anything about REITs at the time or the details of the restructure. There was a very real possibility that it would lead to better performance for WIN in some way. Turns out selling was a good move; the stock has dropped quite a lot since then. But making decisions on information is better than simply reacting, even if it does cost me 15% once in a while. Had the restructure made any sort of sense I would have likely held and ignored short term fluctuations.
Second guessing every decision only leads to stress and emotional investing. It is best avoided at all costs.
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