Tragically most people have a very hard time taking a profit and in particular, Big Profits. This applies to all asset classes but is tremendously relevant to speculative investing in things like futures or Crypto.
Why is it so hard? I’ve identified two poison pills: Delusion and Emotional Paralysis.
I’ve suffered from both. Worse, I’ve often suffered from both at the same time. Over 50 years of trading both of these poison pills have cost me enormous amounts of money that was right there within my reach – all I had to do was bag a profit – but instead I’d not act, the market would turn and I’d give it all back…or worse finally exit with a net loss.
The Market is a brutal teacher but eventually I learned how they’re connected. Answer: Fear.
Delusion is a fear of two things: FOMO (fear of missing out) plus a false belief that “it’s never going to stop.” Well…A big profit surge always stops. Ok, it may only pause but that pause can last a LONG time.
Emotional Paralysis manifests when fear short circuits my analytical brain. It’s a kind of Mental Blindness where I can not think of “What Do I Do NEXT?”
My 10 Point Profit Plan List was the cure for me to stop losing Big Profits when they’d appear from time to time. I found that simply reading over my list of options helped me overcome fear and be a more successful trader in general and a better money manager for my family.
Keep this caveat in mind: With profits there are tax implications you must consider and discuss with your tax advisor because there may be reasons for NOT taking big profits at a given moment.
But setting that one caveat aside, here’s my list of options “What to do next” when sudden Big Profits occur for you.
- Enjoy a Free ride and Capital Capture. Whenever an investment doubles I recapture my original capital that I can then apply elsewhere immediately – or in the future. Then any further advances are with “The Markets Money” and I can still put in a stop loss as I want.
- Sit on Captured Cash and Wait for the Next Opportunity. This is a major habit to develop because: there’s always another bus coming along.
- Adding to Winners or Diversifying into Something Else. Cash on hand gives you options. Freeing up cash from a winner increases your options.
- Double Down on a Particular Winner if Appropriate. Everything depends on the details and as you become a better trader you may know better when to add to a particular position. Perhaps you have an investment you want to build and add more to if it starts to prove itself. With free cash that becomes an option.
- Create a New Investment in a Brand New Asset Class. Perhaps you’ve primarily made your money in stocks. Now you could consider a new asset class you’ve been studying. Examples could include Crypto, Real Estate, Precious Metals, etc.
- Apply Free Cash to Improve Your Home. Need a new roof? Want a new kitchen? Need some costly dental work? Make a list of things you’d do if you suddenly had Free Cash.
- Splurge and Buy Something Special for Yourself or a Loved One.
- Have fun with it, like taking a vacation etc. You deserve to treat yourself.
- Give some away where it may make a difference. You may know a young person who’s trying to get ahead where it could be life-changing money; or to someone who is struggling.
- How would that work?
- You can give a tax-free gift of $18K per person, per year.
- This equals $36K if gifted by you and your spouse.
- This equals $72K if gifted to a married couple by you and your wife.
- This equals $144K if gifted on both December 31st of a given year and January 1st of the following year.
10. Or you can donate money to a cause or causes of your choice.
Creating a Profit Plan gives you options and helps to avoid both problems of Delusion and Emotional Paralysis.
One last thing: Selling into Strength is the opposite of the classic gambler “brass ring” mentality where maybe I’m finally going to strike it rich with this bet.
Selling into Strength and creating for yourself a Profit Plan List of Options are building strategies for you and could be a life-changing strategy for others as well.
I hope this helps you and those you care about.
