“We Jews have a special attachment to the Book. The study of page after page in volumes yellowing with age was mandatory. “- Theodore Bikel
Earlier this week I had a “change” trauma. After many subtle and more forceful nudges from both co-workers and the aforementioned family members, I gave in and bought new office furniture. Included in the purchase was buying me a new office chair. I had a very emotional and tearful goodbye to my old chair, which was basically reduced to a bare, swivel seat that I had since I started my company 12 and a half years ago. But lest you think I’m a new man, don’t worry, I bought the exact same model I had! This whole new chair business reminded me of the episode in Family Friendly, where Mike accidentally breaks Archie Bunker’s favorite chair.
Edith: “[after finding out his chair broke, Archie throws a tantrum and lays across the dining room table] Archie, you better be careful, I mean you weren’t so upset when you lost your father.
Archie: “I didn’t sit with my dad for 28 years!”
This is a very common scenario. Children often refuse to make changes to a portfolio they have inherited. Most often, this is for sentimental reasons. In other cases, investors are left with a losing position for years in the hope that it will return to the original price they paid for it. As I have mentioned numerous times, Rabbi Moskowitz, my high school rabbi, used to say, “Don’t let emotions get in the way of your thought process.”
Don’t think it’s just about inheritance. Investors often get “hot” advice from a friend, do some research, and decide to invest because it seems like an obvious winner. But when you go online and check the stock price, you see that it has gone down. So you decide to follow the policy of being patient. As time goes by, you keep checking, but stocks keep falling. Over time, you become living proof of the old adage that patience is a virtue. The stock market may be going up, but you are stuck with a loser.
Many of us find it psychologically difficult to admit that we have chosen the wrong action. It is difficult for us to say that we made a mistake.
Very often, the longer you hang on to an underperforming artist, the more money it costs. The reason for this is that the investor could have invested their funds in something that actually made money. Therefore, stubbornly holding on to a lost stock will only cause financial damage. In economics, this situation is known as opportunity cost. Opportunity cost is defined as the cost of an alternative that must be given up in order to carry out a certain action, or the benefits that could be received from taking an alternative action.
It’s one thing to hold onto a broken chair. Another is stubbornly losing money due to some emotional attachment to an action. Take some time to review your portfolio and reassess whether you are occupying positions due to rational business growth reasons or if your positions are based solely on some emotional connection. If it’s the latter, you may want to think about making a change.
The information in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.
Aaron Katsman is the author of Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing. www.gpsinvestor.com; [email protected]