This column was originally published on RealMoney on July 24 at 8:59 a.m. EDT. It's being republished as a bonus for TheStreet.com readers."We must all suffer one of two things: the pain of discipline or the pain of regret or disappointment."
-- Jim Rohn
In this tough market, investors are faced with an ongoing dilemma: Do we hold on tight to stocks that we favor as they stumble and struggle, or do we adhere to a strict discipline and cut stocks quickly and decisively if they falter? Discipline certainly has been the smart approach during the recent market downtrend but what if you have held on to stocks that have sunk? As the market continues to falter, do you now throw in the towel and lock in the big losses that you allowed to accumulate? Or do you hold on and hope the market will eventually see the errors of its ways? Few things bother investors more than watching a stock slip further than they should have and then finally giving up and taking a big loss just before it rebounds. It is extremely frustrating to forego our discipline, suffer a setback and then ultimately be proven correct. However, it can be far worse to compound our initial error by stubbornly holding as a stock falls further and further. For some reason, investors tend to feel they have to make up their losses in the same stocks that caused them in the first place. We end up holding on to dogs because we stubbornly believe they are going to rebound and put our account back in order. The reality is that in most cases we can make up our losses far faster by seeking out new stocks to buy. There usually is nothing magic in the stocks we already hold, In fact we probably have a tendency to believe they are better than they really are.