Setting Up Multiple Stocks Portfolios to Shield It from Your Emotions

Yesterday, one of the stocks I own (Diamond Offshore – DO) had a really pop after it announced its special and regular dividend. This stock has been on fire for the last several months and is mainly the reason why I hung onto the stock for so long. On the contrary, if it was going down, it would be very hard for me to hang on even if I am very convinced that the stock price will go back up.

I look at my portfolio daily, and seeing a red number (meaning a lower stock price) does not help me feel confident about the stock. However, some of these stocks may just be beaten down unjustifiably. For example, for the last several weeks, another stock that I own (Etrade – ETFC) has seen more down days and up. Even though I’m pretty convinced that this stock will go back up, seeing it go down a couple percentages every day will not make me feel better about owning it. What if I sell the stock because the pressure of losing too much money gets to me? If someone tells me that it will go down another 40%, I might be able to accept that and hang on but what if it goes down 3% per week for the next 10 weeks without me knowing when or if it will stop going down? If this happens, I bet I will sell the stock and regret it later because that will be the time that the stock will bottom.

It is widely known that we retail investors let our emotions get in the way of our investing and is one of the primary reasons why we don’t perform well in the stock market. To help with this, I propose setting up virtual portfolios with even the stocks we own and only looking at our virtual portfolio. There are stocks that we need to look at on a daily basis, and there are others that we are really buying for long term. Why don’t we separate them into different portfolios? Surely, we need to calculate our performance of these separately but most of us just group everything together because we are lazy and that’s how our accounts are setup by default. Some people open several accounts to do this, but most brokerages actually let you do all this with one account. Once you have everything separated, you will see the performance of each portfolio and you can even check each portfolio at different frequencies.

This way, it will lessen the effects of our emotions affecting our long term outlook. Hopefully this helps. Good luck to every investor out there.