20 Feb The perils of falling in love with your investment
We just shifted into our new place over the weekend, and are in the midst of unpacking. While jostling for common cupboard space in the kitchen area for our own stuff, I came across a compartment full of plastic containers. Apparently someone has gotten to it before I did.
I have a vague idea that these containers have been around for years, but I have never ever seen anyone in my household use them before. Neither do I forsee anyone suddenly deciding to. Now, I have nothing against these millions of plastic containers. They could be used to collect rainwater in case of a famine, bail water out from our house in case of a flood. I can turn them upside down and wear them as a hat to a fancy dress party. Or better still, I could bring them to an aesthetic surgeon and have them melted down and injected into unsuspecting young women in search of the perfect nose. But to have them turn up in house after house (we have moved six times in recent history), and to have to devote prime storage space for their upkeep, I have come to the realization that these are no ordinary containers. They might even have super powers.
And after hanging out with Alvin for so long, I learnt that nothing beats an interview to get to the bottom of things. So I sat my mother down over breakfast one day and fired away.
Jon: Where did these containers come from?
Proud Mom: Once upon a time, when you were a little baby, tupperware parties were the rage. My colleagues and cousins used to sell them at their homes. A set could cost up to hundreds of dollars, which was extremely expensive and a significant portion of our monthly income in those days.
Jon: And you bought so many of them?
Excited Mom: Everyone was buying them then! I have friends who bought even more. Besides, they were good quality containers made of durable plastic. There are quite a few because each of them is designed to serve different purposes. I can even make ice-cream from this particular set that we have. Most importantly, they all come with lifetime guarantees attached so I could go back and exchange for a new set anytime.
Jon: Wow. But I have never ever seen you use them before. Are you sure it isn’t time to dispose of them to make space?
Indignant Mom: No!
Jon: But since there is really no use for them, why not?
Angry Mom: Leave my stuff alone.
End of interview.
Some of you might wonder what has a cupboard full of plastic containers got to do with trading and investing. In her insistence to keep the containers when the space could be freed up for better use, I could see my own investing experiences through her.
Once a upon a time, there was this particular stock that I was fascinated with. My colleagues and peers were all talking about it. It was the third largest manufacturer of semiconductor chips in the world, a blue chip STI component stock. It was expensive but the growth prospects were exciting. I read up everything about the company and the industry and I loved what I saw. I wanted only the best for my portfolio and I loaded up on the counter. But it wasn’t enough for me to hold them in cash, so I bought the shares using my CPF investment account. After all, it was run by an important establishment figure and majority owned by Temasek. I thought if it is good enough for them, it must be good enough for me.
And then the cracks started to show. The semiconductor industry floundered and it began to lose market share. The price dipped but every time it did, I began to load up more. The industry is capital intensive and the company needs to devote cash for fabrication plants upfront before revenue could be generated down the road. I became a cheerleader for the counter, telling everyone about the positives. I had invested time and serious money and most importantly, emotions into the share. I maintained my faith and holdings in the company and sat through rights issues, reverse stock splits, and I saw the price plummet to a fraction of my average.
But I was still not selling. I held on to them and as my portfolio evolved, I found ‘space’ for them in the cupboards. Precious prime ‘space’ which, if freed up could be used to purchase better stocks that would have shown much better returns. But that thought was too painful for me to contemplate and they moved house with me just like the plastic containers moved with my mother. My emotions ran from pride in owning the stock, to excitement when their prices moved up, to indignance and disbelief when they are in trouble, to anger with anyone who tries to tell me otherwise. There is no doubt that I was emotionally attached to the stock. If it had not been for the buyout in 2009 by an Abu Dhabi based investment firm, I would still be holding on to my shares in the hope that I would have use for them one day.
I have since learnt the importance of not falling in love with my stocks. Eliminate the emotional attachment and treat all of them as money making machines working for you. Nothing more and nothing less. There is no guilt in selling them when the time comes, there is no betrayal in moving on to others when they are not able to perform. Instead, focus on and fall in love with the performance of your entire portfolio. That should give you the moral courage to do the necessary to upkeep your returns.
Love your family, wife, kids. Love your hobbies and your job. Love movies and music and money, love liberty and laughter and life. Love your plastic containers if you have to. Love everything except your stocks. Because love is an emotion, and when wrecked with emotions, we allow our biases and baggage to creep up upon us and we end up making irrational decisions. That is the greatest sin in investing.