Mea Culpa

May 12, 2014

If you have read my posts, you know how dead set I am against investing in individual equities.  This is  especially true of  those equities which can be characterized as ” momentum ” stocks.  The risk of market direction ..ie .Market Risk… is way safer than the Specific Risk associated with owning all the possible  surprises  that go with owning a  specific equity.

The more diversification in your portfolio, the more you are aligned with Market Risk and separated from Specific Risk.

Not only that; in today’s USA market, diversification comes cheap.

You can buy the ETF….”. SPY “…. A basket of 500 stocks…By paying a commission as low as  $7  you own all 500 stocks in the basket.  To buy each of these stocks separately, to create your own basket, and it will still involve a commission of $7 ……FOR EACH OF THE  500 PURCHASE TRANSACTIONS …Total cost $3,500  versus $7. !

Despite this knowledge , I took a realized loss of $11,000 this morning because I exempted myself from taking my own advice.  Why ? I didn’t see myself as an average investor ( hubris ) and couldn’t resist the lure of TESLA and FACEBOOOK.  I strongly believe in their future. BUT, that has nothing to do with making  money by owning them now. And, for me, the future is now !

So, I stepped up and took my loss,  understanding ( I hope forever ) that I am nothing more than the average investor, maybe with  a little more knowledge,  but sporting  a set of emotions that can easily nullify that advantage ).  It isn’t the loss that’s bothering  me.  Its that I broke my own rule #1  one for capital preservation.

Now that I have paid $11,000 for my hubris,  I feel relief  about confronting myself and taking the loss, rather than continuing to hold these stocks and inviting an even deeper loss..

In time I will forgive myself.  I just better realize I  am an average investor.  All I should aim for  is an average return….3x  rate of a 10 year government bond plus an inflation kicker. And,  forget about hitting for the fences.

Richard Maurice Gore

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