Can you name the seven deadly sins?  If not, I will help you.  They are, in no particular order, anger (or wrath), lust, envy, greed, gluttony, pride and sloth.  Except for anger and lust, I can apply the remaining sins to my approach to the stock market, or more specifically, what not to do.

Let’s start with the biggest one, greed.  I have always maintained that the stock market is a function of fear and greed.  When things are going great, one can get caught up in irrational exuberance.  When you made a pick that is taking off, when do you sell?  It’s up 10%, let’s go for 20.  It’s up 30%, let’s go for 40.  It’s up 50%, let’s double it.  When does it end?  Have a definite plan, a definite goal and timeline.  You must exercise self-discipline.  I use stop losses to allow the stock to climb, but when there is a pull back, it automatically sells locking in a profit.  You cannot let greed get the better of you.  Take what the market will give you.  Tell me a company whose stock price is infinity?

Pride is another potential pitfall.  People let their ego get n the way.  They are afraid to admit they were wrong.  Their stock is down 10 or 20% but they kid themselves believing it will bounce back.  Their stock is down 30 or 40% and they hope it will return.  Again, they let their subjectivity overrule their objectivity.  Don’t let pride get the better of you.  You must have a plan.  Within that plan have a stop loss strategy to bail if the stock goes down a specific percentage.  Losses will happen from time to time.  Take it like a man and move on.

Envy is to be avoided.  If someone else has made a killing on the market, good for them.  Congratulate them, but don’t let their success cloud your judgment.  You might feel you deserve it more than the other guy, but in this world, you are entitled to nothing.  Be your own man.  Focus on your plan to meet your goals regardless of someone else’s success.

Sloth or laziness is a sure sign of failure.  If someone feels the markets are a way to generate wealth, and it can be, you still need a strategy and you need to work that strategy.  Fail to plan, plan to fail.  Idle hands are the devil’s workshop.  It requires work.  Throwing darts at the wall for your stock picks is not doing research or working a plan of any sort.  You must put in the effort.

Gluttony is a bit of a stretch.  I put this as a subset of greed.  Gluttony is defined as the overindulgence or overconsumption of anything to the point of waste.  You need to work at your plan, but if you are overindulging to the point where you are sacrificing more important things like your family, friends or health, you are wasting very important elements of your life.  Work hard but live a balanced lifestyle.

Five of the seven deadly sins are a blueprint for what not to do when it comes to the markets.  Have a plan, work the plan, use stop losses, take what the market will give you, be humble, don’t be greedy, leave your ego at the door, exercise self-discipline, all these concepts are opposites of the seven deadly sins which can lead to your financial success on the markets. 

Cheers,

Al