The Big Bagholder | Podcast Episode #424

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Hey, I’m Ryan Mallory and this is my Swing Trading the Stock Market podcast. I’m here to teach you how to trade in a complex, ever changing world of finance.

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Learn what it means to trade profitably and consistently, managing risk, avoiding the pitfalls of trading, and most importantly, to let those winners run wild.

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You can succeed at the stock market, and I’m ready to show you how. Hey everybody, this is Ryan Mallory with shareplanner.com’s Swing Trading the Stock Market.

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And today’s episode we’re going to do a little bag holding here. Not for me personally, but we’re going to talk about holding the bags on some trades here.

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And what do you do when you find yourself in that position? Hopefully, this is not a podcast that will ever be relevant to you, but for some, unfortunately, it will be.

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And as a result, it has to be talked about because this is probably one of the most emotionally driven topics out there because it involves some heavy, heavy emotions for finding yourself in this situation to begin with.

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So this e-mail that I got from a listener comes from a guy, and we’re not gonna use his real name because I don’t want to put their names out there.

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That’s how we get such good content on this show is by being able to keep people anonymous. So if you do have questions for the show, I’ll not reveal your name, but send it to me

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ryan@shareplanner.com. I read them personally.

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Nobody else is betting through it. I’m the only one looking at them.

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So send it ryan@shareplanner.com. So Dirk writes, Hi Ryan, I’m a big fan of the podcast and thought this might be an interesting

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question for the listeners. In the past, I would just buy stocks without much research or exit strategy, and now I find myself

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bag holding some real losers that I bought a few years ago. I’m sitting on five positions worth about $25,000 and thinking about just cutting my losses and

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using the cash for swing trading. The problem is, is that those positions are collectively down 50 to 60%, which means I’ll be taking

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a 25 to $30,000 loss. So given that this is the position I find myself in, do I keep holding and waiting or do I try to

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put this money to work? Thanks, Dirk.

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Good question and answering this question is probably one of the hardest questions that I get, especially in this case, I don’t even know what the name of the stocks are and that’s probably good

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that I don’t because I come at it more from a general approach here and every situation’s extremely different, like you can’t provide a fix that’s A1 size fits all kind of a fix here because it’s so

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different in so many different aspects. But what I want to do is try to cover the basics of it to help you understand why you’re bag holding

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and the approach going forward that can can be taken. That’s not necessarily the perfect approach because you’re not in a perfect situation.

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You’re actually in the worst situation you can find yourself as a trader and that is to be carrying some heavy, heavy losses and not knowing whether you should sell it or hold it.

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Because here’s the thing, more than likely, whatever you decide to do, it was a bad decision that got you into the trade.

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It’s like likely to have not the greatest outcome either because for instance, you sell it, you’re realizing a major, major loss.

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So that stinks right there #2 you could, you could get out of it and it goes right back up to where it was before.

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Maybe the next day you sell out of it and the next day they come out with news saying that it was approved by the FDA for some, you know, ground breaking drug and the stock’s up 150%.

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You’re like, holy cow, I would be making so much money right now. I’d be well in the grain too.

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That’s possible. I’ve seen some crazy stuff like that happen before.

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I think the only way you feel a little bit validated for cutting losses is if you sell it, take your $25,000 loss and all the stocks go down from there and you’re like, OK, at least I’m walking away

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with something, but it’s not necessarily going to make you feel better. You’re just taking a less of a loss than you would have otherwise.

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It’s like for me with my swing trade, usually my stop losses are somewhere around the three to 5% range.

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And if I get stopped out of a trade, I don’t like it, I hate it. And then I see the stock go down maybe another 10%.

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I’m like, OK, yeah, it’s it could be a lot worse. I could have held on and that stop loss not, you know, go through and then all of a sudden I’m

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looking at a much bigger loss now as a result. If I would have ignored my stop, stop loss parameters.

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But I still feel crappy about the trade. So I don’t, I don’t think that you really come out of this feeling good.

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I think you feel pretty crappy, honestly.

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And this goes back to what I talk about in so many of these podcasts is that I have three simple principles that I follow when it comes to trading.

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One, plan the trade.

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Two, manage the risk #3 let the profits take care of themselves. That doesn’t mean that you just ignore your trades when you have a profit.

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But because you’re managing the risk, whether it’s a profitable trade or a unprofitable trade, you’re still managing the risk and and the profits tend to take care of themselves as a result when

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you’re focusing on the risk the whole time.

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But the plan the trade aspect of that is what keeps you out of the bag holding situations.

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Now, there can always be something bad that happens that’s unforeseen. Let’s say you buy Apple and you buy it at, you know, whatever it’s trading at now, like 190

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something dollars a share.

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And they come out with, you know, news that obviously this is fake. OK, this isn’t, you know, anything real. But I’m just giving you like a scenario here.

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Nobody’s usually losing sleep holding Apple overnight, especially if there’s no earnings coming up.

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But then all of a sudden, the most unimaginable thing happens. Something goes on with a company that causes it, you know, to to drop 60%. Say they stopped producing the iPhone.

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I don’t know, just, you know, whatever. But the stock drops 60%.

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Is the stop loss gonna help you there? No, you’re gonna be down 60% when this market opens the next day.

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And that, that’s the one thing that always keeps me up at night because you can’t really plan for it.

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That’s also one of the reasons why I have a do not trade list. And there’s stocks on there that I will not trade, one of them being Boeing.

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And that’s because the the stock has so much risk to it from a headline standpoint. I don’t want to wake up one day and, and, and be stuck in that kind of a situation.

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One that I would probably consider a do not trade stock now is GameStop. They just reported their earnings early.

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That’s a big no no for me if I can’t trust you on when you’re going to report your earnings. And I know that stock has a lot of craziness going on in it right now and that’s not the only reason

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not to trade it. But in general, if companies are dropping earnings early or they have a history of pre announcing their earnings, that’s not a good thing for me.

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So that’s stuff that, I mean, I’ve been caught in a pre announced earnings. Apple was a perfect example of that. They did that to me probably like four or five years ago where they they pre announced their

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earnings and all of a sudden I was down 7% on that trade and thankfully it was Apple. That’s probably, if there’s a company that’s going to pre announce earnings, that’s probably the one

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that you want it to happen to. But it’s still royally torqued me off.

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You know, I mean, I’m not happy about that. So it’s definitely one of the hardest questions here.

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But the one question that I would ask is this, and I think this will help you come to your conclusion the best, if you can answer it honestly.

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And that is, is the stock that you want to make your money back with. Because I mean, for instance, here Dirk’s talking about I’m down 25 to $30,000.

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Do I cut my losses now and put this money to work in something else or do I ride it out? The question you have to ask yourself, is this the stock that you would want to make that money back

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with? That is this the stock that gives you the best chance at making that money back?

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If you’re trying to make 25 to $30,000 back, is this the stock that you want to deal with or are these the stocks that you want to do it with?

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If this is a long term investment, is there better ones out there that you could be in right now rather than this one?

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So if you’re in, let’s take for instance, like Unity Software. This stock continues to go down every single day.

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I think it’s down like 15 out of the last 17 days. At one point it was a great stock, but it’s still, it just continues to struggle.

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I wouldn’t go near that stock with a 10 foot pole. But if I had to choose right now between going long on Unity, yes, it’s so oversold it could bounce,

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but something’s wrong with that stock because it can’t catch a bounce when the rest of the market, especially tech is rallying and yeah, this one continues to to drip lower.

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I don’t know why, but that would be the problem. Me, I was like, there’s, there’s other stocks out there you take like Google or Microsoft or Apple,

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and yeah, they’re, they’re probably fairly valued right now. But I would say that I have a better chance of making some of that money back with those guys than I

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do with a, with a company that’s down 15 out of the last 17 days. And then it doesn’t even have to just be like one of the mega cap stocks.

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It can be something completely different. Maybe it’s FedEx that’s pulled back some and it’s setting up for a balance off of its rise in trend line.

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Possibly.

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And I’m not saying that’s definitely gonna happen, but it is testing a trend line right now. Would I feel better about that than a stock that I’m I’m down 50 or 60% with and it’s just showing

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no life to it? Yeah, I definitely would be.

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So that’s the question you really have to ask yourself. Is this the stock or stocks that you want to make the money back with?

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Is this the one that gives you the best chance at making that happen?

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And there’s also tax implications. You have to think about that too.

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But the whole reason why we’re in this situation is because we didn’t manage risk.

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And granted, I’m not trying to beat up Dirk here because Dirk came out right at at in the beginning of the e-mail and say, Hey, this is what I used to do back in the day.

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And you know what? I used to do that too.

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I used to get a little bit of money in the pocket. I get a little little change jiggling in the pocket.

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And I would put that money right into the stock market. I would find something whether there was something out there to be found or not.

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And so I get what he’s doing here, but we have to address why we’re here and, and what we can do going forward because there’s also other listeners that are still making these kinds of mistakes

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today.

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It does come back. You sell it and the next day it comes back or finally it just gets its act together and turns around like you take Unity software. I was talking about that one.

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There’s a chance that it bounces and it comes right back up again. I don’t know, but one of the things that would concern me, especially of late is if you’re in stocks

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right now that are down 50 to 60%, they’re not bouncing and you have a market that’s trading at all time highs and continues to print new all time highs for the past six months.

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And those stocks are struggling. Shoot, I’d probably be getting out of that stock because if it’s not, well back up with the market

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you’re holding this thing for long term and it can’t get you something in return, that’s a problem. Now, if it’s swing trading, it’s different because you can be swing trading in small amounts of time

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and all of a sudden the stock just pulls back 5%, you know?

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But in the grand scheme of things, stocks should be going up right now.

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And if it’s not and they’re not following the market higher, and I get that there’s breadth issues and everything else, but still, it’s not going up, that’s a problem.

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I mean, you take Spotify and compare it to Unity and they’re not the same company obviously, but Spotify’s doing great, Unity’s not.

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You take Shopify, Shopify’s struggling. It may be good as a swing trade at some point, but it’s not doing as good long term with the

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struggles that it’s had over the last few months. But one thing that shouldn’t be a struggle is signing up for swingtradingthestockmarket.com.

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swingtradingthestockmarket.com. OK, so we want to continue dealing with what I find to be one of the most emotionally driven topics

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in trading. You’re in it still because of emotions.

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Why are you in a bad trade right now? Why are you in a bad investment?

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Why are you down 50 or 60%? It’s because you let the emotions get the best of you.

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Why did you not manage the risk? Because you let the emotions get to you.

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Why don’t we manage the risk? Because often times we don’t want to manage the risk.

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We don’t want to come up for our trade a stop loss that will tell us when to get out of the trade before we ever get into it because we’re afraid of it actually working.

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We’re actually afraid of our risk management working. Now that sounds backwards, right?

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You’re like, Ryan, why would I do risk management if I didn’t think it worked? That’s the reason why you don’t do it, because you know it will work, because risk management does

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save you from some disasters. I’ve traded Unity software before, and let me tell you, if I had just been holding that thing the

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whole time, I’d be down massive amounts of dollars. But because I manage the risk, I’m watching that thing fall apart from the sidelines.

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And so, yeah, one of the reasons why we don’t manage risks is because we’re afraid it’s going to work.

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We hope that our stop losses never get hit, but that’s just not going to happen. It’s either you decide that you’re going to take small losses along the way or you’re going to take

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long term major losses in your portfolio. It’s one or the other.

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And the way, the best way that I find to be able to manage the big losses from ever happening is by managing the risk.

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And that is planning your trade, knowing where you’re going to get out before you ever get into the trade.

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So you’re in it because you don’t want to manage the risk. And what would that emotion be?

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You’re afraid of losing and as guys, I don’t see this trait as much with women. So I’m not trying to like, you know, just single out guys, but as guys and I’m like one of them too,

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not like I am one of them, but I don’t like to lose. I play sports.

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I don’t like to lose at sports. I want to fight as hard as I can to win a a game of pickleball.

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I don’t like to lose. And that can translate into trading to where all of a sudden you don’t want to lose in trading.

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So instead of selling and taking a small loss and admitting defeat on that trade, we white knuckle it and hold on and we want to take a much bigger loss.

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But oh, there’s that old saying that says you don’t take a loss if you haven’t sold yet. That saying has ruined more accounts than any I’ve ever seen before.

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That is the worst saying in the stock market. It’s not a loss unless you sell.

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Oh, it’s a loss. It’s a loss all right.

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It might not be from tax purposes, but you got a loss on your hands. And the fact that you even adhered to such a crazy expression is the fact that you’re being too

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emotional with your trading. When you reject that saying it’s not a loss until you sell it.

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You haven’t made any progress towards managing your emotions when it comes to your trading. So what’s gonna happen when you when you decide, OK, you know what?

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I’m just gonna move on from this trade. I’m gonna put it towards something else that’s gonna be emotional too.

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The whole thing is going to be emotional. You’re gonna get out.

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It’s gonna be emotional. And you wanna know why?

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It’s because you’re gonna be checking that stock for the next year at least to see what it’s doing. You’re gonna be like, oh, should I stayed in it or not?

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You’re gonna check it every day. And if it goes up, God forbid, it’s gonna be extremely emotional.

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I don’t care how disciplined you’ve gotten in your trading since then. You get out of a trade that you’ve been back holding, that you take a big loss on, you’re going to

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feel emotions thereafter. Probably.

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One thing to do is to not check it, to not look at it, not even consider if it shows up in your scans.

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You can’t really do much about that. But I don’t know, I wish there was a way to block stocks on our platforms.

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Maybe there’s one out there that does that. I’m just thinking out loud here, but it’d be great if you could just block stocks like I would block

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Boeing. I do not like Boeing showing up in my scans at all because often times it sets up as a good trade

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setup until you get another airplane goofing up and then all of a sudden it’s dropping back down again, no pun intended.

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Jeez, that sounds horrible. OK, so you’re in the trade.

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You’re in a bad trade because of emotions. If you decide that you want to get out of the trade, it’s going to be emotional as well.

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It’s going to be painful, it’s going to suck. There’s going to be some relief that comes from it immediately.

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Like finally I’m out of that piece of garbage. But then if that stock starts to rally back, it’s going to be emotional.

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So prep yourself. And if it rallies back, guys, remember stocks are going to go up or down regardless if you’re in it

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or not. So you get out.

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It’s not like you know the, the, the stock that you just got out of announces to all of its shares. Like, OK guys, he’s out, let’s not upset him here.

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Let’s go straight down from here so we can validate the reason why he sold. No, there’s a good chance it’ll go up.

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It can either go up or down. If it does go back up, it stinks and probably it’s oversold.

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So there’s the potential for a bounce. I don’t know if it’s sustainable or not, but there’s the potential for that.

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But what we but what’s difficult is when you’re staying in a stock that continues to drip lower, you’re losing your capital and that’s no way to trade.

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That’s very difficult. So we’re wrapping up this podcast.

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Yes, I get this is this is an emotional topic when you’re talking about shedding some losers, some people will never shed them.

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And there’s no perfect answer to it. It’s not like I can say on here, it’s like, yeah, you should definitely sell it because the reason

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why you’re in this situation, we haven’t managed risk. Managing risk works when you’re doing it actively, when you’re doing it way after the fact, and when

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you’re down 5060%. There’s no right answer.

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There’s not gonna be something that makes you feel good about what you just did. So that’s gonna make it not only the reason why you’re in the trade from emotional standpoint, be

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significant, but it’s also the exit that’s going to be significant as well going forward. Keep in mind, and I think Dirk has figured this out now because he’s talking about these things

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being in the past that he’s still having to pay for in the present. But for those listening that aren’t aware, plan the trade.

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Plan the trade every time. Know where you’re going to get out before you ever get in.

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Manage the risk. That means actually follow through with what you’re going to do, whether the trade’s in profitable

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territory or you’re losing on the trade. Manage the risk actively.

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And if you manage the risk, the profits with #3 the profits will take care of themselves. For those listening that are dealing with these similar issues, I know those things are tough, man.

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I, I dealt with it a lot early on in my career and that that’s the reason why I have a podcast because I had to learn the hard way and I feel very passionate about managing the risk.

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Most people that you’ll come across in trading don’t care about it at all. I think it’s everything to successful swing trading.

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So if you enjoy this podcast, I hope that you can leave me a 5 star review and let me know the problems that are persisting for you by sending me an e-mail ryan@shareplanner.com.

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I want to hear from you. I’m the only one that’s going to read these things, so I’m not giving out your identity.

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I’ll give you a great Florida redneck name and you may or may not like that, but that’s the hallmark of the show.

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So shoot me that. e-mail ryan@shareplanner.com and also check out swingtradingthestockmarket.com.

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