I had an uncontrollable urge to short the Walt Disney Company (NYSE:DIS) last night.
It had nothing to do with the company’s growth prospects. In fact, if anything I think most of Disney’s businesses have a bright future.
No, my sudden desire to short the company came when my three-year-old son, bursting with hyperactivity after watching Mickey and the gang do the hotdog dance on the Mickey Mouse Clubhouse, head butted me in the nose while I was reclining on the couch reading a book.
Little Charles Jr. got to spend the rest of the evening on the naughty mat while Daddy iced his nose. And luckily, the market was closed, so I wasn’t able to do something impulsive like load-up Trader Workstation on my phone and take out my frustrations by shorting Disney.
I tell this ridiculous story to make a very real point. It can be extraordinarily difficult at times to suppress our emotions as investors. Fear is the emotion that usually causes us to make the worst trading decisions; we often feel the urge to sell after a stock has already fallen substantially–at precisely the time we should be buying.
But anger is an emotion we have to contend with as well. After getting burned trading Research in Motion (Nasdaq:RIMM) last year, I am the first to admit that I am no longer objective on that stock. Not only do I hate management, but I also hate the stock itself, as if it were an individual who had personally wronged me.
Ridiculous? Yes. But these are the emotions we deal with. And if you feel yourself losing your objectivity, it’s time to walk away from that particular trade, long or short.
Today, I see a lot of emotion among investors in RIMM. The stock (and its product, the BlackBerry) has die-hard fans and haters…and not much in between.
I have no position on RIMM, at least in the short term. The company faces stiff competition from Apple, Google and Microsoft. It still has a strong (though weakening) position among enterprise clients and in emerging markets, but I suspect a fair bit of this is based on RIMM’s lower prices.
Given the abundance of cheap Androids flooding world markets, that’s not an advantage I consider sustainable. Still, BB10 has gotten high marks as an operating system, and carriers have agreed to support it. The company may have a few tricks left up its sleeve.
My advice? If you want to play RIMM, long or short, have trading rules in place that will mitigate your emotional responses. Use some sort of risk control, such as a stop loss. And it might be a good idea to have specific price objectives to help you pull the trigger and sell to lock in gains.
