Shrink Rap: Hard Knocks and Jitters

This Shrink Rap forum addresses questions from two novices on individual stock trading; both investors are trying to cope with the difficult conditions of a bear market. The striking difference in my responses is based on the different levels of anxiety expressed, and on the first investor's level of stock exposure.

School of Hard Knocks

Dr. Hendlin, I have been buying and selling stocks for a little less than two years. Yes, I entered the game at the worst possible time. I thought I would wait for the bubble to burst, then play the recovery. Well, I am down about 20% overall because I played every bear-market rally, going long at the top each time. The past year or so, I have seen myself as a swing trader, but occasionally I give in to bottom-fishing or buy-and-hold impulses, which have always cost me. I am trading very lightly right now.

Now for my question: Having lost 20% to date, every time I have a losing trade I am torn between two scenarios. One is that I am a sucker, losing all this money and paying commissions to do so. According to this view, I should just pull the biggest stop-loss of all and liquidate my brokerage account, putting all my money in tax-free bonds or somewhere safe. The other viewpoint is that I have been losing because I am a novice in a tough market, and when I learn more and exercise the discipline that comes from experience, and the market starts to improve, I will make back all my losses. I can look at my losses to date as tuition in the school of hard knocks.

The problem is that I am aware that the latter viewpoint is not far removed from the addicted gambler's perpetual goal to "make it back"; the more he loses, the more he is compelled to gamble in order to make it back.

I am 46 years old, have $500,000 in tax-free bonds, $100,000 in money markets and $128,000 in my brokerage account. Only about $20,000 of that is in stocks; the rest is parked in the money-market portion of the account. I have about $300,000 debt in commercial real estate that I occupy. No other debt. So I really have been playing it safe, but I just don't want to see the $128,000 keep dwindling if am just kidding myself about being able to win this game. ...