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hi i4value,
If we apply hindsight bias to every decision we make, it is focusing more on the result than the process. And we all know that focusing on the process of decision making, is more important than focusing on the result. As the well aged saying goes - A wrong decision may still make money for you, while a right decision may not make money.
That said, the 2 scenarios you described are very common for OPMIs like us. Personally, I look at it by trying to find a balance.
(1) If I am an investor who prefers cheap prices, then it is better to emphasize qualitative criteria over quantitative criteria for cut-loss selling. This is because if natural self for such an investor profile is to buy at cheap prices, then it is very hard to cut loss when the price gets cheap(er) even though cutting loss is probably the right thing to do. We have witnessed how destructive averaging downwards has been for losses. Same thing for profit-taking selling - The price conscious investor is not very comfortable holding expensive companies, but forgets that quality companies never come cheap. Fortunately, quality companies make good use of their retained earnings to compound their returns for the future. When this happens, Mr Market re-rates it and generally, good things happen after good things happened.
(2) If I am an investor who dreams about quality and willing to pay based on high price/sales multiples, then it is better to emphasize quantitative criteria over qualitative criteria. Trees don't grow to the sky (maybe some do but most don't) and when everyone believes that all trees will probably grow to the sky, then the investor who dreams about quality, may be better off looking at current prices for a more rational decision to take profit. Same thing for cut-loss selling, if Mr Market re-rates a stock's prospects and the price drops, it is might be better to use a cut loss % as that will reflect Mr Market's decision making process as normally, it is very brutal when it turns and do a re-rating. Generally, bad things happen after bad things happened. The tech boom of 2020/2021 to 2022 crash was a good reflection
If we apply hindsight bias to every decision we make, it is focusing more on the result than the process. And we all know that focusing on the process of decision making, is more important than focusing on the result. As the well aged saying goes - A wrong decision may still make money for you, while a right decision may not make money.
That said, the 2 scenarios you described are very common for OPMIs like us. Personally, I look at it by trying to find a balance.
(1) If I am an investor who prefers cheap prices, then it is better to emphasize qualitative criteria over quantitative criteria for cut-loss selling. This is because if natural self for such an investor profile is to buy at cheap prices, then it is very hard to cut loss when the price gets cheap(er) even though cutting loss is probably the right thing to do. We have witnessed how destructive averaging downwards has been for losses. Same thing for profit-taking selling - The price conscious investor is not very comfortable holding expensive companies, but forgets that quality companies never come cheap. Fortunately, quality companies make good use of their retained earnings to compound their returns for the future. When this happens, Mr Market re-rates it and generally, good things happen after good things happened.
(2) If I am an investor who dreams about quality and willing to pay based on high price/sales multiples, then it is better to emphasize quantitative criteria over qualitative criteria. Trees don't grow to the sky (maybe some do but most don't) and when everyone believes that all trees will probably grow to the sky, then the investor who dreams about quality, may be better off looking at current prices for a more rational decision to take profit. Same thing for cut-loss selling, if Mr Market re-rates a stock's prospects and the price drops, it is might be better to use a cut loss % as that will reflect Mr Market's decision making process as normally, it is very brutal when it turns and do a re-rating. Generally, bad things happen after bad things happened. The tech boom of 2020/2021 to 2022 crash was a good reflection