How Losing Stocks Are Like Ex-Spouses
It took me 16 years to leave my ex. But I wanted to get divorced from my hurtful investments more quickly, so I called a couple of financial therapists.
One of the top women on Wall Street recently told me that females tend to “marry” their investments. The comment hit home. As I mentioned in my column last month, I have a strong aversion to selling stocks, and that, I now realize, is a flaw that has hurt the performance of my Practical Investing portfolio.
The problem has been particularly acute over the past year, as I watched a number of my stocks slide steadily and I reacted by doing nothing. Well, not exactly nothing. What I did was make excuses for the companies, much as I used to excuse the behavior of my former husband: “It’s restructuring.” “The whole industry is in a slump.” “Currency swings.” “China.”
It took me 16 years, including a few in therapy, to finally leave my ex. But I wanted to get divorced from my hurtful investments more quickly, so I called a couple of financial therapists.
Brad Klontz, who is cofounder of the Financial Psychology Institute and who is also divorced, immediately understood the analogy. “You think that if you just hold on long enough, things will change,” Klontz told me. “This hope distorts your vision of reality. To sell—to walk away—means you are making your mistake real. It hurts. You suffer through all kinds of regret. No one wants to feel that, so you kick the can down the road, hoping that it will get better.”
J. Jeffrey Lambert, a certified financial planner and a member of the Financial Therapy Association, told me that selling becomes easier if you understand the goal of each of your holdings. You need to ask yourself, What do you want your investments to do for you? Lambert says.
It’s a great question, and it reminds me of what I said when I launched my portfolio four years ago. I was seeking a low-maintenance relationship—one that comported with my preference to buy stocks and hold them for a long time, preferably forever. To accomplish this goal, I would invest in companies capable of weathering difficult economic environments, with fortress-like balance sheets, consistent earnings growth and seasoned executives.
Several of my portfolio’s problem stocks never fit the bill. Why did I buy these bad boys in the first place? “Whenever I’ve made a mistake like that, it was all about feeling as if I’d otherwise miss out on something,” Klontz said. “They’re exciting. There’s an element of intrigue. At the same time, you know that you’re not usually attracted to that kind of investment.”
Having completed my therapy, I signed on to my brokerage account with a plan to eject my miscreants. Naturally, most were behaving well that day. But I’d seen that routine before. I decided to make a clean break. Walk away. Don’t look back. (I’ll save for another day how I deal with big winners that come to strain my value parameters.)
Saying goodbye. Acacia Research (symbol ACTG), you’ve never delivered consistent results. You say you’re on the cusp of turning the corner with an improved portfolio of patents that you are hired to protect, but you just can’t control the timing of the court decisions that bring in your revenues. You’re not my kind of company. Stone Energy (SGY), I thought you had promise, but your cash flow has gone from subpar to miserable. I’m out. And Nu Skin Enterprises (NUS), you rely on housewives here and in the developing world to buy your skin-care and weight-loss products to sell to their friends. I know many people will buy your pills and serums. But me, I advocate diet and exercise. We’re just too different to ever make this relationship work.
It was a painful day, as I locked in total losses of $21,982. I consoled myself with the knowledge that those losses will help lower my 2015 tax bill. And, glass of wine in hand, I offered a toast to better choices with my next batch of stock picks.