Michel Pireu Columnist
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Street Dog .

Why is it so easy to start with a half-sized position, watch it a bit, and then go full-sized later? What is later? Is it when the stock is down, and you get to average down? Or is it after the next positive quarterly earnings report, when the stock’s moved higher?

"Later" can be either; and, strangely, both feel kind of good, or at least don’t feel that bad.

When you go in half-hearted and the stock goes up, you still get some "feel-good". You don’t really regret not investing the other half because you never had it in the first place.

And since even the most level-headed among us tends to feel about twice as bad over a loss than we would over a similarly sized gain, if instead the stock drops, you get some feel-bad but it’s not debilitating. There is no endowment effect on the half you didn’t invest. We feel smart about having held back — we convince ourselves that we are pleased to be averaging down. We sleep pretty well at night.

Conversely, if we go full-in from the outset, and the stock immediately moves higher, it feels really good. Possibly twice as much as when we went half-sized. But if the stock immediately drops, it feels terrible. It feels really bad. So much so that it becomes almost impossible not to beat yourself up over it. Similarly, when exiting a trade, it feels more comfortable to start by "selling half".

But then we have to ask ourselves: is feeling comfortable the best way to invest?

Over time, it doesn’t make sense to start with half. That’s just math. So, if you’ve done your work and you think you have the analytical edge, don’t dip your toe in the water, jump in.

Adapted from an article by the founder and chief investment officer of Albert Bridge Capital.

pireum@streetdogs.co.za

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