How To Treat Investor's Elbow

Do you find yourself worrying about the market and can't think straight? Have the shares you sold bounced up and the ones you kept given you a sore head? Has your confidence plummeted?

You are suffering from 'investor's elbow'.

I have had recurrent investor's elbow since October 1989. The only shares I owned then were from the de-mutualisation of Abbey National. The two year anniversary of Black Monday was three days away and the FTSE 100 was 13% down in a month. The last thing I wanted was a repeat of October 1987 when I could have sold when the market was only 10% down but I hung on to lose far more. I was going to be smart this time. I was through that exit door when everybody else was still in their seats. My self congratulatory reverie was broken by the index rising strongly from the day after I sold. Abbey National rose over ten times by 1999.

In 2003 I panicked when I decided there would be a SARS pandemic and sold Stagecoach (LSE: SGC) before it doubled. Last year I dumped Dana Petroleum (LSE: DNX) within minutes of the Chancellor's hiking of North Sea oil tax by 10%, only to re-buy the shares at a higher price a week later.

My worst losses of confidence have come after being greedy and making some positions far too large via spreadbetting. My cash disappeared faster than setting fire to the Bank of England.

Is that it Doc?

You've doubtless had a moment in your GPs' surgery when your hopes that the phrase "miracle of modern medicine" actually meant something were cruelly dashed. The treatment for investor's elbow is the same as for tennis elbow:

• rest
• check your technique.

First of all, stop trading. Give your overloaded mind time to recuperate. You'll know when you are ready to make some sound, rational decisions again.

There are two exceptions to this: there's some company news which means you really should sell and secondly if you have a geared position that is too large - reduce it.

When you have put your feet up and are feeling calmer, think about what you may have done that led to your case of investor's elbow. I've mentioned some - too large a holding in one share, particularly when it's a volatile stock in the first place, and panic trading when masterful inactivity would be wise. Simply buying the wrong shares will lead to losses unless you are plain lucky. Often you've done nothing wrong at all but haven't experience enough rides on the City rollercoaster to know that it's normal and inevitable that your shares will fall.

Take the opportunity to learn the right techniques the easy way - from the books the great investors have written just to help you. These guys are already rich and famous, so they didn't need to spend hours at the keyboard distilling their wisdom. OK, they maybe wanted to be just a bit more famous. My favourites are One Up On Wall Street by Peter Lynch and Contrarian Investing Strategies: The Next Generation by David Dremen.