Dangerous Phrases—Relationship Investing (29)

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I was thinking about some of the investment phrases that cause me to cringe when I hear them uttered. While they’re mentioned often and may sound sensible, beware. They may seem innocuous enough but often make little market sense, especially in the midst of a bear market. Employing them in your investing philosophy has the potential to cost you dearly in financial terms. On Wall Street, the frequency with which a saying or phrase is uttered often bears no relation to its accuracy or applicability.

As much as it pains me to think of them, it would bother me more if I didn’t include these phrases in this book. Some of them serve as excuses and defensive verbiage to rationalize the retention of losing equity positions. Others identify with the underlying company and not the stock. Some may represent a detachment from investing reality. I’ve addressed these lines in one form or another in the book, and in some cases devoted a full chapter to a specific one in cases where I thought it was needed. Here goes:

1. How much lower can it go?
2. It looks cheap.
3. It pays a good dividend.
4. It’s a good company.
5. It’ll come back.
6. I can’t afford to sell it (for tax purposes); I’m making too much money.
7. I can’t afford to sell it; I’m losing too much money.
8. It’s not a loss unless I take it.
9. If it goes lower, I’ll just buy more.
10. I’m in it for the long term.
11. I don’t need the money.
12. The company’s not going out of business; it’s not going bankrupt.
13. I just read a good article about the company.
14. My brokerage firm is recommending it.
15. It’s a “blue chip.”
16. This is a $___ (name a price) stock in five years.
17. I like their products.
18. They have a great franchise.
19. It’s at its low (for the year; a reason not to sell).
20. It’s at its high (for the year; a reason not to buy).
21. The bank pays me next to nothing on my money.
22. Where else am I going to put the money?
23. I’m “dollar cost averaging.”
24. It has good management.
25. It’s for my kids.
26. It’s in my individual retirement account.
27. I need the income.
28. My friend has a friend who got a recommendation from another friend.
29. I’m putting it away and not looking at it.
30. They’re making money.
31. They just received a large contract.
32. I’ll sell when it gets back to what I paid for it.
33. It’s already had its move (up; a reason not to buy).
34. It’s “oversold” (and due for a bounce).
35. How much higher can it go?
36. I’ll buy it back when it comes down.
37. I’m not worried.
38. It has been in my family for years.

Some of these excuses can just as easily be applied to a troubled relationship by changing only a word or two, like “How much worse can it get?”, or “If it continues to worsen, I’ll just deal with it,” or “I’m in it for the long haul,” or “It’ll improve—eventually.”

When reviewing the list, be candid with yourself and assess whether you’re making some of these same arguments. In a bear market they can be a route to financial ruin. To elevate personal and other considerations above the investment itself is like deciding to buy a home just by looking at the siding and windows and not its structure.

Moral: Just because an investment phrase is uttered often doesn’t mean that it’s correct. I hope a bell will go off in your head when you hear phrases like these, and take time to realize their potential for steering you down the wrong path. That’s because they don’t directly apply to the investment itself. What’s more, they often serve only as excuses for not taking investment action.

(To be continued...)

This excerpt is taken from “Relationship Investing: Stock Market Therapy for Your Money” by Jeffrey S. Weiss. To read other articles of this book, click here. To buy this book, click here.

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