The stupidity of adding to a losing stock position (XCO)

They say confession is good for the soul.  Well this one has been months in the making and perhaps overdue.
So the books I have been reading, for the past oh say… forever, say that adding to a losing stock position is a sucker’s bet.  It is the amateurs that try and average down into profits instead of cutting bait and moving on.  It sound easy enough but there are times I still have no mental discipline.  Such was the case with XCO.  On January 10^th  2012 I bought a little Exco Resources Inc. (XCO) for $9.30.  (There has to be a bottom somewhere for natural gas prices, right?)  It kept dropping throughout the day.  The next day I threw more money at it, buying again, this time at $8.80.  The games our mind plays when trying to trade stocks.  And I thought my mind played games when I was giving up smoking.  The short of it is that once again I was trying to catch a falling knife without the mental discipline to do it half way safely.

Nat gas prices can’t possibly keep falling

Famous last words as the past months have seen the price plunge, to what I think, is an all-time low.  Natural gas quotes are now routinely near $2.00 .  Sub two dollar trades have printed enough that it seems almost common place and people are no longer shocked.  As far as XCO, it would have to work really hard just to be able to see it’s way out.  A short while ago it was trading under $6.   This position is so far underwater of my $9.00 breakeven, that it might as well be my own personal submarine.  It has recovered a bit in the last two days, just enough to give me the tiniest of slivers of hope that one day, some day it will come back to the surface.  Then again maybe it won’t.  I once thought that about Orion Pictures (look it up).

Long term take away

My goal is to one day have a pile in the trading account big enough to allow me to dump the day job and trade for a living.  In order to do that this kind of mental lapse has to be learned from.  Don’t add to losers… ever!!  Even if this stock somehow gets back to good I may keep it as a reminder of what not to do.  Well that’s it for today. 

Here’s to learning from our mistakes and keeping an eye on your Everyday Money.