1. Sell your losers and keep your winners
Unconsciously, we strive for status, pleasure and glory. We love to win and hate to lose. But those unconscious drives may derail our plans for wealth accumulation, even as we perceive ourselves as winners. For instance, if you sell a rising stock you feel like a winner. Plant your flag! Take a bow! Walk proud!
You may have just missed out on future gains, dividends, spinoffs, and splits, and, if your stock is in a taxable account, got hit with taxes. And, in any account, fees and commissions.
Most people mistakenly sell their winners to proudly take their profits. Meanwhile, they keep their losers, hoping for a turnaround that never arrives. All for unconscious reasons. A sale locks in an ego-enhancing win. Holding on to a falling stock locks out the pain of loss.
2. Winnings are your money, not house money
Unconsciously, we’re reckless with other people’s money. When you lose at the casino, the house keeps your money. But if you win at the casino, emotionally and unconsciously, your winnings still feel like the house’s money. Everyone is more reckless with OPM — other people’s money. A true Freudian might suggest that unconsciously, people feel guilty over any windfall and would be relieved to unburden themselves of guilty money. In any case, that mindset dovetails with the casino’s goal for every winner: keep playing until you lose your money back to the house, and then some. Then lose even more as you chase your losses, trying to break even. The unconscious mind allows you to be reckless with found money.
3. Money is all the same
Unconsciously we tag money by its source and keep money in different mental accounts: earned money, profits, lucky bets, inherited or gifted. So we think, “That’s Aunt Bella’s bequest. She loved AT&T so that’s where her money has to stay. But that $5000 bonus I got was a windfall; let’s put it on that hot stock Cousin Dan, our sharp young broker, mentioned at Thanksgiving.”
No, and no!