Don't you leave my heart in misery
If you sell then I'll be blue
'Cause breaking up his hard to do
Two
years ago I bought this great stock because I thought it was an outstanding
investment at a fantastic bargain price.
But now it is a terrible stock and is down 22%.
So
it looks like I was wrrr …
I
was wroooo….
I
was wrong.
And
here lies a serious problem for large investors and small investors alike. When it comes to investing money, we all
become like Arthur Fonzarelli (the Fonz), we hate to admit we are wrong. This denial causes us to hang on to “bad”
stocks for way too long.
Psychologists
tell us that it causes great emotional distress to admit that we have made an
investment mistake. Investing mistakes
are more agonizing because the loss is financial and quantifiable. This tendency is much more prevalent in men
than women due to the “male ego” effect.
Women dump losers more quickly (just like in single bars) and this is
why women investors (both professional and individual) tend to outperform men
in studies evaluating gender and investing.
To
admit you made a mistake, you must try to resolve the fact that out of the
thousands of stocks, mutual funds, EFTs and commodities available, you actually
made the conscience decision to buy this one.
And boy did you screw up this time!
But
you couldn’t really be that stupid, could you?
So you begin to lie to yourself.
It really isn’t a bad stock, it’s just that some bad things have
happened to it. Good things are going to
happen soon. If I just wait, the stock
will recover and will even make money just like I expected. Then I won’t be stupid, no I will be an
investing genius, just like Warren Buffet. Oh yeah!
But
it doesn’t usually work that way. Typically
the stock continues to slide until it hits a bottom and then stays down there
for a long time. You hope it comes back,
but this hope is not based on reality. Sadly, the Easter Bunny never shows up
with any “recovery” candy.
I
am writing this because I just sold off one of my losers. About two years ago I bought this
highly-recommended, popular, utility stock.
It offered solid growth potential with a great dividend. I got it at a “bargain” because some
temporary factors had knocked down the price.
The stock was so good that I bought more than usual (I now have a
personal limit on how much I invest in any one stock).
Initially
the stock performed as I expected. The
price went up and I almost bought more
when it bounced back a little. But then
the economy slowed and demand for electricity waned. Natural gas prices dropped which made this
particular utility’s cost of production less competitive. Finally, some
negative internal information about the company leaked out which
involved politics. Of course this bad
publicity received much attention in the middle of an election campaign.
Then
stock of course began to slide. It never
dropped much at one time. But the
negative pressures listed above resulted in a slow leak over time. Of course I told myself that this was just
temporary, that the slide was illogical and would stop very soon. And the dividend, the dividend was still
strong so I could afford to wait for the stock to return to profitability. Then
the viability of the dividend came under question due to the weaker company
balance sheet. And then I asked myself
why major investors weren’t buying large chunks of the stock considering the dividend
was even better due to the lower price?
Remember when you
held me tight
And you kissed me all through the night
Think of all that we've been through
Breaking Up Is Hard To Do
And you kissed me all through the night
Think of all that we've been through
Breaking Up Is Hard To Do
So
I sold the stock. And even though I
believe everything I have written in the post, it still hurt to sell the
stock. It still was distressing to admit
I had made this mistake. The brain says “yes”,
but the heart still says no. But if you
are going to become a good investor, you got to know when to “fold ‘em.
Breaking
up with your stock is indeed, hard to do:
Investario:
I’m sorry Stockeeta. It’s over between
us, I’m leaving you.
Stockeeta: Please, no.
I know my returns are down, but it’s just a cycle I’m going
through. I’ll change and you will be
happy with me once more.
Investario:
Look Stockeeta, I was first attracted to you by your high yields, but your
returns are sagging and there are other choices available with very attractive profits.
Stockeeta:
But the dividends! I have always provided you with very satisfying dividends!
Investario:
Yes, but word on the street is that your dividends will be much less satisfying
in the future. I’m sorry, this is goodbye.
I beg of you, don't
say goodbye
Can't we give our love another try
Come on baby, let's start a new
'Cause breaking up is hard to do
Can't we give our love another try
Come on baby, let's start a new
'Cause breaking up is hard to do
:)
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