It can be really hard to behave correctly if we see examples of people being successful while doing things we know have higher odds of a bad outcome (e.g., buying lottery tickets). But as you’ve probably learned by now, investing isn’t always fair. Bad choices get rewarded, while people who made prudent decisions sometimes appear to be punished—at least in the short run.
So even though it’s tempting, I strongly encourage you to judge the investment advice you receive based on the validity of the principle (process) and not the outcome. Let me share a story about a friend who had stock in his grandmother’s mining company. Over time, the family had invested and lost millions trying to keep the business afloat. As you might imagine, the family stories around the business made it seem like a sacred thing to protect, regardless of the cost.
At this point, the stock had reached a low of $2 a share and my friend didn’t know what to do. He worried that if he sold the stock, then it might recover and his family would regret the sale and wish they’d kept it. I acknowledged that if he sold the stock and it doubled or tripled—which was a real possibility—he’d feel badly. But the catch was that if he kept the stock and it went to zero, he’d feel much, much worse.
The underlying factor was that he needed to make a decision based on a principle (e.g., did owning this stock support his long-term goals?) instead of the emotion and family lore surrounding the stock. There’s no guarantee that good investment decisions won’t lead to a painful result. But we need to remain committed to making good decisions based on sound principles and not just luck or emotions.
This article is written by one of our senior advisors, Robert W. Hanson Jr., CFP, MS. Bob is a graduate of DePaul University’s College of Commerce, and is a board Certified Financial Planner, (CFP). He also found time to earn a Masters of Science Degree in Financial Services from the College for Financial Planning in 2003. Bob has also taught investments at Northwestern University to students in the school for Continuing Studies.
Note: The opinions voiced in this material are for general information only and not intended to provide specific advice or recommendation for any individual. Please remember that past performance of investments may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this newsletter (article), will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this post serves as the receipt of, or as a substitute for, personalized investment advice from Vermillion Financial Advisors, Inc. To the extent that a reader has any questions regarding the applicability of any specific issue discussed within this newsletter to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. A copy of our current written disclosure statement discussing our advisory services and fees is available for review upon request.
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