Recently, a group of friends got together to watch a ballgame. As the night wore on, Jeff started to complain.
The stock of Lockheed Martin, the massive defense contractor, was up more than 40% this year, but Jeff had sold out. He missed out on the recent run after the Russian invasion of Ukraine and he was nursing a bad case of seller’s remorse. It did not help that one of his co-workers, Mike, continued to brag about how much money he was “making” trading stocks.
As the evening progressed, Jeff’s complaining increased. It didn’t help that his team was losing.
As we stopped to take a break, I asked Jeff why he sold his Lockheed stock.
He thought for a moment and recalled that he used some of the proceeds to pay his kids college tuition. I nodded my head in agreement and asked what else. Jeff thought a minute and remembered he replaced the roof on his house and paid off a credit card bill to build up from a trip the family took last year.
Liquidating the Lockheed stock allowed him to pay off those items. In the process, he and his family were in a much more stable position. However, it bothering him that he had missed out on the opportunity to own a “can’t miss” stock.
This is not the first time Jeff and I have had a conversation of this nature. As a result, I asked him to keep an investment “scorecard.” Every time Jeff made a buy or sell decision, or thought about making a buy or sell decision, he should document it. Otherwise, our memories have a funny way of playing tricks on us.
As Jeff reviewed his scorecard he recognized he sold his shares in Peloton as well as Snowflake. By selling these Jeff was able to reduce debt and increase his emergency cash to six-months’ worth of living expenses. Both were great ideas.
Since he was complaining about missed opportunities with Lockheed, I asked him about Peloton and Snowflake since he liquidated. He wasn’t too sure. As he pulled quotes on his phone, Jeff realized Peloton was down 85% over the last year while Snowflake was down more than 50% in the past six months. Jeff nervously smiled recognizing his financial picture would be quite a bit worse if he had hung on to those. He dodged a huge bullet.
I then asked him about Mikes portfolio. Jeff immediately lamented about how much money Mike said he was making.
I reminded Jeff that this was the same guy who bragged last year about the killing he was going to make owning things like Robinhood, Stitch Fix and Affirm.
Jeff started to remember that conversation and pulled quotes on those holdings. They were all down more than 80% in the last year. Jeff gulped and had a bit of relief that he did not follow Mike into these “can’t miss” stocks.
Jeff started to have a better appreciation of reality.
Smart investors cover necessities first. If you don’t have emergency and short-term funds set aside, you are constantly at risk for having to liquidate long-term assets to cover short-term needs. Inevitably, this forces you to sell at a less than perfect time.
Hindsight is always perfect, but impractical. Whether reviewing your portfolio or your neighbors, everyone is a terrific Monday morning quarterback. However, it does not help your mental or financial picture.
A smart portfolio is balanced as it serves multiple needs. It never makes sense to have all your eggs in one basket.
People brag about their winners. However, they have losers too. Together, they comprise a portfolio. Run the performance on your cohesive portfolio. Otherwise, you will drive yourself nuts if you constantly focus on just one or two holdings.
Know what you own and why you own it. The only portfolio that matters is yours. Your goals are different than your neighbors. Be true to who you are. You have a different set of cash flow needs, growth needs and tolerance for volatility. Stay focused on playing your game—not your neighbors.
Lastly, successful investing and financial management are predicated upon long-term discipline and consistency–not finding some superstar stock or lottery ticket.
Dave Sather is a Certified Financial Planner and the CEO of the Sather Financial Group, a fee-only strategic planning and investment management firm.