Blogs > Your Money

Dave Patterson and Erin Preston, a father-daughter team of Certified Financial Planner® licensees, provide thoughts and suggestions on a broad collection of personal finance topics.  Information provided in this BLOG is intended to be of a general nature and may not be appropriate for all situations.  Readers should consult with their own financial advisors before relying on any information contained herein.

Friday, October 29, 2010

Words of Wisdom from Anonymous

Our first two “Words of Wisdom” posts were quotes from the famous investor, Warren Buffet. This time we thought you’d like to here from that famous person “Anonymous”. He/she is often quoted regarding all sorts of topics. Sometimes it is more than one person, the oft-referred to experts, “they”. Everyone wants to know who “they” are. No one seems to know.

In this case “Anonymous” is credited for an old Wall Street adage: “No tree grows to the sky.” This is an important fact for all investors to remember. Too often we let our emotions get the best of us. We often buy investments we don’t really know that much about, and then hold on to them longer than is prudent.

While we don’t recommend individual stocks to clients (we utilize low-cost, no load mutual funds, primarily), our clients often like to dabble in this or that stock they heard about over the backyard fence or at the cocktail party last week. We advise them to set a target price at which to sell. They seldom do. Often the stock they buy is one that’s been on a meteoric rise for some time. Surely it will continue? What’s to stop it?

They hang on and hang on until suddenly there’s a market correction or the company’s earnings fall short of over-zealous expectations and the stock drops ten or twenty percent, overnight. The tree they thought would grow to the sky, suddenly was blown over by an unexpected storm. To make matters worse, they often continue to hold on while their stock continues to plummet in price. Surely it will bounce back, they think!

Unfortunately, too often, investors let their emotions drive their investment decisions. We can learn a lot from “Anonymous”. He or she is really quite smart.


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