- Guard against cognitive and emotional errors
- Consider the bigger picture with your portfolio
Do you stick or twist? On the back of a big winner, there is a temptation to take your chips off the table. Investing isn't gambling, however, and as celebrated fund manager Peter Lynch once said: "Selling your winners and holding losers is like cutting the flowers and watering the weeds." To apply this thinking to today's markets, it doesn't make sense not to back growth in US tech simply because the S&P 500 IT and communications sectors are each up around 50 per cent in the past year.
Still, there comes a time when selling is the right call, and surveys of Investors’ Chronicle readers repeatedly show people agonise over when to make this decision. That's no surprise, as solving this conundrum is incredibly difficult. To begin with, investing is personal: objectives, timeframes and risk tolerance vary enormously. On top of this, many humans are afflicted by the cognitive biases and emotional impulses that, unchecked, lead to making bad portfolio decisions.