Investors strapped into roller-coaster names like Tesla stock must trade with their minds, not their hearts, this portfolio manager says.
"I made an incredible amount of money (on Tesla stock) and then almost blew up an account, trading heavily on margin while the stock continued to go down," Charles Harris, portfolio manager at O'Neil Global Advisors, tells Investor's Business Daily's "Investing with IBD" podcast.
Harris says he ignored the technical sell signals from the stock and instead was wrapped up in Tesla's story and potential.
Tesla Stock's Peaks And Declines
Harris rode Tesla's rise until its peak in 2021, seeing returns of nearly 1,400% in Tesla stock in 2020 and another 200% in 2021. He says his mistake was not paying attention to the sell signals, or even earlier just taking profits from his successful run.
"Any normal person would say like, why not just take half out, right? Put it into a savings account and you'll never have to work again, and play with the rest, which was still a huge figure," Harris said. "It's almost embarrassing to say I don't know why I couldn't do that."
Audio Version Of Podcast Episode
Despite nice gains in recent sessions, Tesla stock still lies more than 20% below its July high of 271, a price the stock last hit in September 2023.
Shares of Tesla have been battered by waning consumer demand for electric vehicles in core markets like the U.S. Additionally, Tesla continues to face rising competition from other automakers. Analysts have also criticized Tesla CEO Elon Musk for being distracted by managing social media site X.
Tesla stock currently has a middling IBD Composite Rating of 55, according to IBD Research. According to IBD Stock Checkup, the megacap firm ranks No. 3 in the Auto Manufacturers Group.
The Dangers Of Over-Researching Tesla Stock
Harris notes the particular dangers of getting so attached to conviction trades that the trades become emotional. He says this can sometimes happen naturally, by over-researching a stock and focusing too much on its value rather than its fundamentals.
"The stronger your conviction is, the faster you have to be to lose it," he said.
In the case of Tesla stock, Harris says he got too attached to conviction even when the fundamentals signaled it was appropriate to reduce your exposure or position. "When you're in something, particularly if it's been something that's been working for an extended period of time, and you've made a lot of money in it, you can just be in a frame of mind where you just can't believe it," Harris said. "You really do become married to it."
Remember Your Rules
He points to Bill O'Neil, IBD founder and longtime chairman, who Harris says reversed positions even in previously successful stocks when he saw the right signals in the chart. "It's good to have a short-term memory when you're a trader."
Tap here to learn the critical habits for keeping conviction in check.
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