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We often hear that we should not fall in love with stocks.
What does this mean?
"The most important thing to realise is simple: The stock doesn't know you own it. All those marvelous things or those terrible things that you feel about a stock, or a list of stocks... are unreciprocated by the stock or the group of stocks." - Adam Smith
Basically, don't love things which can't love us in return. However, I am only human and cannot avoid loving and hating unappreciative things.
I have no doubt that I made many decisions before based partially on my emotions. Could I continue to make emotional decisions? As long as I remain human, I could, of course.
Recognizing that we are all emotive is an important step in becoming better investors. The challenge is in how to be more rational in our decision making process.
Remembering that we should not fall in love with our investments, a friend sold his entire investment in an S-REIT which he feared he was falling in love with only to see its unit price rising higher. Now, what can we say about this? There are probably many people out there who love this S-REIT even more. This brings to mind another saying and that is we do not know we have a good thing until we lose it.
Although there is definitely wisdom in saying that we should not fall in love with our investments, I think that it would be less misunderstood if we say we should not blindly love our investments. Being blindly in love with our investments could see us holding on even when there is a deterioration in fundamentals.
Regular readers know that I have reduced my exposure to Singapore real estate by selling my properties. Readers would also know that I cautioned against being too optimistic about real estate and S-REITs as prices have appreciated a lot, yields have compressed significantly and the low interest rate environment is unlikely to last for many more years.
Then, why do I still have significant investments in certain S-REITs? Am I in love with these S-REITs? Perhaps, I am. However, I like to think that I am not blindly in love with them. I like to think that they are still worth loving.
So, what makes them worth loving?
They are still worth loving if they provide me with good recurring income. They are still worth loving if they take care of their health. They are still worth loving if they are growing stronger, day by day. In short, they are still worth loving if they give me joy and not angst.
Here are links to some of my past blog posts on S-REITs which show the way I think:
1. First REIT: This one is for keeps.
2. AIMS AMP Capital Industrial REIT: Making money.
3. Saizen REIT: Why did I buy and would I buy more?
4. LMIR: Divested 42.5% at 52.5c.
5. LMIR: Too cheap to sell.
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8 comments:
Hi AK,
Indeed we need a reason to fall in love and never be scared to love again!
Just make sure we guard our piggy bank. If it's broken, it'll hard to love again. LOL~
The tune of Pink and Nate Ruess' 'Just give me a reason' keeps playing in my head. The chorus is so apt for those of us who have been burnt in the market and decided to start again.
Link to the MV: http://www.youtube.com/watch?v=bgIf5EvGa3s
Just give me a reason
Just a little bit's enough
Just a second we're not broken just bent
And we can learn to love again
It's in the stars
It's been written in the scars on our hearts
We're not broken just bent
And we can learn to love again
Cheers,
Endrene
Hi Endrene,
Thanks for sharing the link to the song.
This is not a song I know. I know now. ;)
Hi AK,
I like the song but not the MV though. :D
Anyway, I think it makes a lot of sense to question our reasons for staying invested or staying stubborn.
Before we plunge head long, we ought to be prepared to fully withstand/accept the downside, even if it means losing a leg or an arm. And only if the potential reward is well worth it.
Too often, heartbreak comes when we only know how to get in and not out. For better or worse, till daft do us part? The market does not honour hard-sided lovers.
The moral of the story? Be a casanova. Be James Bond. Stay alive and there will be many more loves to come! :P
Cheers,
Endrene
Hi Endrene,
I have a frozen portfolio. It contains stocks which have turned out to be mistakes. They are a constant reminder of my fallibility and my emotive self.
Over time, I just rationalised that if I make more money than I lose, I guess I am OK. So, I just have to make sure that I find more winners than losers all the time.
I can only hope that, with more experience and knowledge, I will eventually learn how to avoid losers. :)
I think staying faithful to a few is less tiring than being a James Bond or Casanova. ;)
Holding on to stocks when they are no longer worth holding is much akin to holding on to a gf (or bf) that is no longer "the one".
Things started out well, everyday seems like this is the perfect one until one day things turn sour. If you are rational enough, you know there is no future but your emotional self continue to remind you of the good times that you once share. Hard to let go... lol
Me? I have learnt to let go and cut loss when I know the immediate future of a stock is bad. Preserve capital, live to fight another day. Market is always there, don't cling on to something that you know has no (immediate) future.
Hi Ray,
I couldn't have said it better myself.
I guess I keep some of my ex(s) in a freezer. I have a frozen portfolio, remember? *evil glint in eyes*
;p
oh my... i hope you're only talking about frozen stocks.... lol
Hi Ray,
That is for me to know and for you to find out. ;p
There are good reasons why I must remain anonymous. ;p
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