Don’t Let This Mistake Crush Your Returns From Shares

I once asked an airline pilot, “What’s it like being a pilot?”

His answer unnerved me a little. He said, “Ninety-five percent boredom and five percent fear!”

Keeping a cool head

That could be a standard answer to such a question, and a standard joke in the trade, but I’ll never feel completely at ease on a flight to Corfu again!

The fearful parts of flying must surely be taking off, landing, and when the plane hits a spot of turbulence. My pilot friend went on to tell me that passenger jets pretty much fly themselves these days, once they are up.

So, with the clouds passing beneath like a cotton-wool carpet for most of the journey, and the plane steering itself a steady course, presumably pilots turn to crosswords, sudoku or a good book to pass the hours.

Hopefully, that’s an exaggeration. I don’t really believe for one second that my well-trained and qualified professional friend and his aviation peers spend the short amount of time they are actually flying their planes themselves seized in the grip of abject terror. However, we can’t deny that the stakes are high and the potential for a catastrophic outcome is ever present.

5% fear

It strikes me that being an investor is similar to being an airline pilot — ninety-five percent boredom and five percent fear. It’s a good analogy for being a shareholder and throws up a few cautionary lessons.

Legendary US fund manager Peter Lynch once said, “The key to making money in stocks is not to get scared out of them.” So what are the dangerous times, the 5% fear times, when I might get scared out of my shares?

Buying in the first place seems like a danger zone. Imagine my buying a share after doing all my due diligence and research, only to see the share price move immediately in the wrong direction. There’s a lot of potential for fear to drive me to panic-sell straight away.

Then, after a long period of holding and perhaps steady gains or even status quo, some market wobble or a profit warning could come along. Once again, I’m at the controls and gripped with fear. Again, it would be easy to sell up in a fearful panic.

How about if things go right and the share price rises a fair bit after I’ve bought. The profits build in my share account and the position gets big in my portfolio. Fear seizes me again. This time it’s the fear of losing my gains, so I sell out to take my profits, perhaps missing large further gains still to come.

95% boredom

There’s danger in the 95% boredom time that I’m holding the shares when nothing much seems to be happening, too. When I’ve done all the research and I’m all caught-up with monitoring events with my holdings, there’s not much to do as a shareholder. There’s danger in that. For a long time, shares that eventually go on to pay me handsomely for my ownership of them can do nothing at all but sit there. Or share-price progress can seem paint-dryingly slow.

Sheer boredom could motivate me to seize the joystick and loop the metaphorical loop with my holdings, perhaps doing daft things such as selling them and reallocating funds to more ‘exciting’ shares elsewhere.

If I want to make money from my shareholdings, and if my reason for holding each one remains valid, I must follow Peter Lynch’s advice and make sure I’m not scared (or bored) out of them. And to help with that, I’m going to remember what my airline pilot friend told me.

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Kevin Godbold has no position in any shares mentioned. The Motley Fool UK has no position in any shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.