Sunday, December 16, 2007


I'd like to talk about style. I'm 33, my wife and I have been working since we left college aside from a few years off for grad school. Our 401ks are maxed, we are no longer eligible for IRA contributions but those were maxed when the option was there. I argued that our investments outside of these accounts in accordance with our age should be risky, high risk/high reward. No mutual funds, no bonds, none of that crap that I have 20 years after retirement to be safe with. Fortunately, it was an easy sell. We're going for homeruns, and homeruns only.

Study after study shows that people are very adverse to loss, and will sell a loser too late and sell a winner too early for hopes of retrieving what once was, or "guaranteeing" profit. When friends and coworkers come to me for investment advice, I'm often shocked by how little risk they're willing to take given age and long-term expectations. They're simply afraid to lose money.

Did anyone see the Jets game last weekend? We see examples of this all the time in sports. Trailing by 5 points with less than 2 minutes to play, Mangini kicked a fg instead of going for it on 4th down from inside the 20. Great move coach! If you like losing by 2 pts. But wait, there's always the 25% hope of recovering the onside kick. The Browns got it and on the next play, after missing about 20 tackles, Jamaal Lewis rumbled for a t-dawg. Inexplicably, Mangini kicked yet another fg a mere1 minute later, insuring a 6 pt loss (and covering for me and my Brownies)!

Has anyone ever watched a Herm Edwards coached team? Infamous for his "you play to win the game" rant, it seems more like he "plays to lose by less than if I didn't punt." Same reason Marty Schottenheimer got fired, he just didn't have the nuts to stick it in.

Jim McMahon's coach attempted to pull him out of a game at BYU once when they were losing by 20 points late in the 4th quarter. After refusing to come out, Mcmahon led BYU on an apepoop comeback to win. He's a guy who played to win, always.

So what are you afraid of? Are you the guy who doesn't hit 16 against a ten (you know, the guy we all hate) because you're delaying the inevitable for a good 10, 15 seconds? Or are you the guy who knows that you have twice the chance of winning if you hit, even though you may go kablooey more often?

With that said, we won't be talking about candles or moving averages or chartist BS. You think Warren Buffet spends his spare time looking at graphs trying to find Rorschach patterns? Read about companies. Look for homeruns.

Bonus Early Task of the Day (will post tomorrow under heading): Read anything and everything by James B. Stewart.

WHY: This guy is a freakin' genius, his columns ooze intelligence and insight. He is currently the Bloomberg Professor of Business and Economic Journalism at Columbia University. We'll both make it a task to read one of his books.

WHERE: or find his books online.


Anonymous said...

So true. I was always very conservative with my investment strategy until I started seeing a faster ROI with higher risk options. Why is it that we can invest big bucks in a game without thinking twice, yet when it comes to the market we need to see research demonstrating a successful track record to even consider it? Thanks for the words of wisdom.

Anonymous said...

I believe you meant to say Roth IRA because any financial guru will tell you that you can always contribute to an IRA fund. Remember the all true saying:A fool and his money are quick to part!

AX said...

Not sure how you relate the 2, but in this case, yes, meant Roth IRA.