On March 15th, zenruption pegged Tesla stock as good for another 30% run. As of that date, it is up about 25% and could still possibly hit the 30% mark in a day or two. Not bad. If you bought and made some money, then good for you. You just made an outstanding return.
So now the question is when to get out? The answer would be, probably soon.
Could it go up more? Sure. It could see a rise of possibly 40%, but the trick of being a smart investor is to know when you have made an outstanding profit and a stock starts to seem a little lofty. That is when great investors cash out.
The point of the Tesla stock increase is analogous to all stocks. Take your profit and be happy. If you just made a 25% return in three weeks, that is amazing. You should be ecstatic. If you think you can ride it up further and time it, you have just fallen victim to the Superiority Trap, which means you feel you know better than the pros. Just don’t go there. Stay humble. Markets cannot be perfectly timed by even the best investors and a drop after a big increase can cause one of the costliest psychological traps, the Sunk Cost Trap. Basically, the Sunk Cost Trap is when investors refuse to accept the reality that they made a bad choice and keep waiting for the situation to correct itself instead of taking the loss (or less of a profit) and walking away.
Great investors practice discipline. Poor investors want more and refuse to admit defeat. One way this is often seen is when a stock has been ridden up and starts to fall. The poor investor will fall with it, thinking it is only a matter of time before they recoup their losses.
Walking away happy with your good profit defeats all psychological traps. There is no Superiority Trap and you aren’t allowing yourself to fall into the Sunk Costs Trap. You simply made money and are now looking for the next promising opportunity. That makes you a great investor.
An great investor is every bit the same as an great poker player. As Kenny Rogers once sang, “You gotta know when to held ‘em. Know when to fold ‘em. Know when to walk away and know when to run.” He was right. As a great poker player knows when to fold or even take a lot of small wins that add up to a big win, a great investor does the same.
So yes, 25% is really, really good. Markets are looking scary coming into what is expected to be a bad earnings season. While the zenruption staff loves what Tesla is doing and bought at the $150 range back in early February, a dismal market can sink ships just as a rising market can lift them all up.
It’s not just Tesla we will be evaluating our pick of TJX Companies as well while looking at a play on the VIX. Now might be a good time to evaluate everything you have made an excellent return on lately and act like a great investor.
Lina Martinez is a zenruption contributor to our money and life sections. She is ready to take her profits and walk away. This means she is buying drinks this weekend!
Feature photo courtesy of Flickr, under Creative Commons Attribution-Noncommercial license