Dec

23

 When you are in love with someone, you refuse to see certain aspects of his/her personality and behavior. You find always a way and a reason to justify them. Although you are humiliated and hurt, you do not manage to free yourself from the situation. You are willing to accept any condition provided that the link with the loved one remains established. At any price and any cost. It is impossible to think of a different relationship or even life without that person. When you finally manage to leave this blurred perception of the reality, you may have damaged yourself seriously. Similarly, there are investors who are in love with a specific stock they have been following for years. They look at the ups and downs of prices with the idea that eventually their loved one will reward their patience and trust. When prices go down, they continue to find justifications about the good fundamentals, the strong cash flow, the new products the company is about to launch, the improved market share and so forth. Or even the charisma of the leadership. They average down their positions as prices plunge, but they do not even think of buying something else which could perform better.

Falling in love implies a "fall" into a new state of mind, a dramatic, uncontrollable and sudden emotional change. A state of vulnerability for the investor, but also of irrational excitement to start a new life. During the dotcom bubble these situations were quite common. This is typical of some companies such as Google or Apple. For their fans, it is difficult today to justify why the stocks have lost more than 50% in one year. Actually, I would refer to infatuation more than love at this point. Love is a mutual condition and in this case there is no reciprocity. But we'll see what happens to these emotional relationships and their investors' portfolios in the next months.

Nigel Davies adds:

This is one of the great truths of very many activities. I sometimes think that it's especially dangerous for counters because we can find new numbers on the fly and convince ourselves we're being scientific. I've become convinced that the proper approach is to adopt the same rigor as some of our TA cousins and have trades worked out beforehand and have them written down trading plan. This should of course include escape routes.

By the way, I understand that some hard-nosed American women conduct early dates like a kind of interview, which would be the, er, 'romantic' equivalent. Once their potential beau meets the appropriate criteria (shoes, manners, absence of hair in ears etc) they allow themselves to 'fall in love.' In many respects this actually seems very sensible though I wonder how well it has been tested. If any successful trades had actually been made, presumably they wouldn't still be looking. So the criteria must therefore be arbitrary.


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