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
