As the Tweets I posted over the weekend indicate, it's all about discipline. Without discipline you put yourself at greater risk of the type of catastrophic loss that can take years to overcome, if you're ever able to build your account back up.
What's this discipline I speak of? Having a plan before you enter a position, as I explained last week:
... reality, for large swaths of long-term investors, is straightforward: They do not go into a position with discipline, using pre-determined -- and quite possibly scaling -- stop losses and profit targets. In other words, if it drops this much, I sell this much. If it goes up this much, I sell this much. There's a time to have strong hands or let winners run, no question, but discipline trumps trying to use intuition. The latter blows up portfolios.
With this, comes not only the willingness, but a rigid adherence to cutting your losses or taking small losses. Embrace these types of losses because, if they're all you're experiencing, you're doing really well. Staying in or getting out of AAPL if you have held it for more than a minute should not have come down to an emotional decision last week. It should have happened long ago and according to plan (assuming you have one. Obviously, quite a few do not).
On the flip side, you have to be willing to leave money on the table. Don't fall into the trap of AAPL dropped from $700 to $650 so I need to hang on so I get back to 30% profit again. That's a killer. As TheStreet's Robert Weinstein likes to say: "If you're not leaving money on the table, you're not making money."Veer from this plan of taking small losses and banking profits when they're there -- and on a regular basis -- and you increase the risk that you'll blow up your account. Assuming you actually have a plan, it goes something like this. You say, OK, this one time ... this one here with AAPL ... I am going to let it ride or double down or catch the falling knife because this market's crazy and what I think is right so I am going to follow my conviction. You go for it. And you end up being right. AAPL rebounds. You make money. Blessing or curse? If that doesn't end up being a one-off move -- and, for most investors, it never is -- you'll do it again. And again. And again. And again. And it will not work quite as well as it did with AAPL or whatever stock you were right about when you threw discipline out the window. That is Investing 101. Or at least it ought to be. Call me the stubborn one, but everything you say to convince yourself otherwise -- to not be disciplined -- amounts to nothing more than rationalization. Follow @rocco_thestreet --Written by Rocco Pendola in Santa Monica, Calif.