The Single Biggest Threat to Your Investing Success

Editor’s Note: Yesterday, Alex Green emphasized the importance of using trailing stops and explained how to implement them in your portfolio.

Today, you’ll hear from Pillar One Advisor, and founder of TradeStops.com, Dr. Richard Smith. In the essay below, Dr. Smith outlines the biggest threat to your investing success.

And – spoiler alert – it requires a bit of discipline to overcome.

Check out today’s essay to learn about Dr. Smith’s foolproof way to eliminate this threat and bank sizable gains.

– Rachel Gearhart, Managing Editor

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Over nearly 20 years of firsthand experience in the markets and a dozen years helping tens of thousands of investors, I’ve learned there is one thing that threatens our investment success more than anything.

I’m going to illustrate it with a personal story.

A couple of months ago, I shared with my readers a trade I made on McDonald’s (NYSE: MCD). I purchased McDonald’s in August 2014 when the price dipped and my indicators suggested shares had room to run.

Indeed, I did enjoy a nice run, finally getting stopped out on June 28, 2016… during the volatility following the Brexit vote. (Yes, I did actually sell the next day.) My stop was tripped by $0.08… and McDonald’s shares shot up $4 in the next four days.

At the time, I didn’t regret my decision to sell even though my trailing stop was barely hit and the stock popped right back up.

Then, the market gods tested my resolve even more.

Over the next three weeks, McDonald’s rose 10.3%, from around $115 to $127, with hardly a single down day the whole time.

Did I regret getting stopped out? Did this cause me to question my trailing stop strategy? Not at all! I didn’t give it a second thought.

If you know me at all, then you know that I have spent years studying investors’ behavior and emotions. What I found, and what all the studies confirm, is this:

The one emotion that is the single biggest threat to our investment success is the fear of regret.

Notice that I didn’t say “regret.” I said “the fear of regret.”

It’s the fear of regret that prevents us from selling when our trailing stop is hit. It’s the fear of regret that prompts us to take profits early when we get an unexpected gain. It’s the fear of regret that leads us to jump into a stock when the media has worked its audience into a lather over the next hot ticket.

What happened with my McDonald’s trade is every trailing stop-loss believer’s worst fear – that you’ll get stopped out by pennies and then the stock will turn right around, rip higher and… you’ll regret it.

This fear of regret is what is behind most of the hesitation when it comes to following through on the discipline of a trailing stop strategy.

My McDonald’s trade was a good trade. I made money on it. I stayed in the trade for nearly two years… nearly twice as long as the average investor stays in a position these days. I made more than 26%, including dividends. Because McDonald’s is a low-volatility stock, I gave it a larger position in my portfolio (this is a really important point that I’ll cover in detail another time).

What’s to regret? I was happy to stop out of the trade because that’s my goal with every trade.

I want to hold on to a position until it hits its stop.

Why? I’ve learned over the years, often the hard way, that this is the best way for me to make money in the markets.

My TradeStops trailing stop signals have been tested extensively. When the trailing stop signal is triggered, more often than not, it means the long-term uptrend in a stock has been broken.

Did I leave some money on the table? Possibly, but it really didn’t matter.

What matters the most is that I have a system for making investment decisions without the fear of regret. I am confident that my system puts the odds in my favor… and I execute on it.

Overcoming our fear of regret is our single biggest opportunity to improve our investing outcomes.

My confidence in the TradeStops system was eventually vindicated with McDonald’s as well. In spite of the 10.3% rally in McDonald’s shares, it never triggered a new entry signal; it put in a lower high and successive lower lows.

The tools of TradeStops are there for you to put the fear of regret behind you and become the confident and successful investor you know you can be.

No (fear of) regrets,

Richard