Friday, May 22, 2009

Firmly Fixed on the Past

Investing is a pursuit fraught with emotion. Euphoria, despair, hope and fear all play a role and much of that is the result of not where we are, but where have been. Unfortunately that is largely irrelevant but the comfort of familiarity has a strong draw.

At my son's graduation last weekend I had a "discussion" of some investment precepts with an extended family member. (why do I let myself go that way!) This individual holds General Motors Bonds and was fixated on the fact that the bond has continued to pay its 6.75% coupon. The fact that the price has fallen from $100 to $5 seemed incidental. Thank god she didn't understand that the current yield is 121% or she'd have bought more. Her rational for buying and then holding the investment eludes me but the sun was shining and it was a beautiful day.

Likewise the investor who has the "$20" stock worth $5 now. "I don't want to sell it at a loss, but I'm out at $20 so I'll break even." WTF? Happily watching it lose 75% of its value, when (if pigs fly) the company finally turns itself around, the stars realign and business is growing THEN you sell it. That piece of paper that says "100 shares" on it has absolutely no memory of the day you bought it. Doesn't know, doesn't care. Get over it.

Lets look at some other stocks that seem to have gotten amnesia even if the holder is still dreaming of what was and must yet come again. (Click on the image to expand)




and the mother of all hope-springs-eternal investors.....JDS Uniphase

Investors holding on to financial and housing stocks should emotionally move on. You can't reblow a bubble and you miss the opportunities elsewhere trying.

John Barnyak