The Indomitable Investor: Why a Few Succeed in the Stock Market When Everyone Else Fails

The Iron Man

To Alan “Ace” Greenberg, vice chairman emeritus of JPMorgan Chase, selling is a simple decision. He does not philosophize or worry about how much money he might make in the future. He only worries about what is happening, and not losing. “When the market is going up, or the market stays the same, and I have something going down, I sell,” Greenberg said.7 He is extremely unsentimental. He does not fall in love with his stocks. He sells any stock if he does not like how it is behaving. He says he learned early in his long career to say “I was wrong.” He considers admitting mistakes an indispensable investing rule.

This sounds easy, but it is hard. Most people have trouble confronting mistakes—especially when they have lost money. They hope that the stock will bounce back, and that they will break even. Doing nothing is often costly. They would rather keep a bad investment and hope it recovers, than sell and lose money. Selling hurts—emotionally and financially. According to psychologist Daniel Kahneman’s “loss aversion” theory, losses are twice as painful as gains are pleasurable.

One of Greenberg’s first mentors, Bernard J. Lasker, an investor and former New York Stock Exchange chairman, taught Greenberg the virtues of disciplined selling. “His standing instructions were if it goes up a point, buy me more,” Greenberg says. “If it goes up another point, call me. If it goes down two points, sell it. This sane simple advice became a source of enduring mystery for me. Why ...