Return to Harbor Coffee, our fictional coffee business. A friend suggests putting this month's $200 into its shares instead of your usual fund contribution.
Your $10,000 portfolio already includes $400 of Harbor and $200 in cash. Your written plan caps any one company's shares at 5% and calls for $200 a month into a broad fund.
The friend supplies no original evidence. You also don't know whether upcoming bills will need that cash or what the order will cost.
Choose before seeing the answer
This is a practice decision in a brokerage account, with amounts in US dollars. For sizing, use the cash already in the account, hold prices unchanged and leave fees out.
Before reading on, choose proceed, defer or cancel. Work out Harbor's new share of the portfolio. Then name one missing fact, why it matters and where you would check it.
Missing information belongs in the answer.
Ten questions in five checks
A pre-trade checklist tests whether a buy or sale has enough support to go ahead. The same five checks work for a planned contribution or a withdrawal for spending.
Reason and evidence
- Q1. What goal or new information explains this trade?
- Q2. What independent evidence supports that reason, and what would weaken it?
A planned contribution or a bill due is a reason to act without a market forecast. A tip repeated by three friends is still one tip if they all share a source.
Ability to bear loss
- Q3. When might I need this money?
- Q4. How much could I lose, and what would that do to my goal?
Put a dollar amount beside the percentage. Being comfortable with a loss does not mean you can afford it. Paying a necessary bill is a valid use of the money.
Fit with policy
- Q5. What will the holding and the whole portfolio look like after the trade?
- Q6. Which existing policy rule supports this change?
Apply your investment policy. Wanting to get back to an old purchase price or catch a rally does not authorize breaking its rules.
The actual order
- Q7. Which security am I buying or selling, and how much?
- Q8. What costs, order terms or limits on cash access could change my decision?
Check that the security, amount and order type match your decision. The purchase amount can leave out transaction fees. For a withdrawal, check when the money can reach your bank.
The record and next review
- Q9. Have I saved the reason, evidence, uncertainty and decision before the outcome?
- Q10. What event or date will trigger review, and what would change my decision?
Use the previous lesson's journal entry to preserve what you knew before the result. If you plan to leave the market temporarily, include what would bring you back. Money withdrawn for spending needs no reinvestment plan.
These checks do not add up to a score. Nine reassuring answers cannot erase a missing source or an unknown cash need. The return will remain uncertain even after the checks are complete.
Explain the decision and the unknowns
Apply position sizing: a holding's weight is its value divided by the whole portfolio's value.
$600 ÷ $10,000 = 6%. Moving cash into shares does not add money to the portfolio: the total stays $10,000.
That exceeds this case's 5% limit, so the proposed order fails the policy check. Better evidence alone cannot fix that. You can defer while checking the missing facts or cancel the proposal. Neither choice means Harbor is a bad business.
Compare your missing fact with these three:
| Missing item | Why it matters | Next check |
|---|---|---|
| Original evidence | Tip may lack support | Trace and verify the claim |
| Near-term cash need | Bills may need this money | Check bills and available cash |
| Relevant order costs | Cash may not cover purchase | Broker's fees and order terms |
A smaller order could fix the size conflict, but it would not supply the evidence or cash plan. A limit is a ceiling, not an amount to buy. Nothing here automatically calls for selling the existing $400 holding.
The purchase would put the whole $600 holding at risk. It could become worthless, and the case does not tell us whether you could bear that loss when the money is needed.
If you defer, the review trigger gives you a reason to revisit the proposal.
The regular fund contribution remains a complete route if cash needs and policy still fit. A confirmed spending need could instead justify changing the contribution. Finishing the decision does not require placing a stock trade.
Find the matching tool
Revisit only the lesson that matches the snag.
- Results and losses. Revisit the behavior gap for returns affected by deposits and withdrawals; loss aversion for fear of loss versus financial capacity.
- Pressure and confidence. Use FOMO and herd behavior to examine social pressure and a tip's source; overconfidence to check claimed skill against the full record.
- Beliefs and prices. Revisit confirmation bias for evidence that could change your mind; anchoring when an old purchase price dominates the decision.
- Timing. Use recency bias and market timing to check a temporary exit's return condition and separate forecasts from changed needs.
- Optional headline literacy. Fear and greed indicators explain sentiment measures. No gauge needs checking before a trade or fund contribution.
If you want to study individual businesses, the three financial statements offer an optional next path.
In short
- A trade needs a reason, evidence, room for loss, policy fit and an order you understand.
- Reassuring answers cannot cancel a policy conflict or a missing fact that matters.
- Deferring, canceling or following an existing routine can complete the decision.
- Save your reason and review trigger before the outcome. A sound decision can still lose money.