By Barry Schwartz
Here are Barry Schwartz’s four prescriptions to ensure misery in investing.
First, believe all the tried and tested adages such as “sell in May and go away”. To ensure misery I highly recommend that you stay true to your convictions that stock prices follow scientific patterns or trends that can be duplicated time and again. You most certainly want to spend lots of money on software programs that will tell you when to buy and when to sell.
My second prescription for misery in investing is to never use simple math. Don’t spend time reviewing a company’s balance sheet, cash flow statement or potential for earning’s growth. At any sign of bad news, your best action to ensure misery is to sell. Who cares if the problem is temporary or solvable, there’s no sense in waiting around for the sentiment to improve. So what if the stock’s price has fallen by more than the potential earnings hit it could suffer.
My third prescription for misery is to definitely listen to the most negative advice. Any time you hear someone mention in the media that they are shorting a stock that you own, or believe a correction is starting today or that stocks are overvalued, you should sell. No problem, you will always be able to buy back in at a cheaper price.
My final prescription to you is to sell right away at the first sign of profits. Dow Jones at 10,000? That’s an all-time high don’t you think you should sell? Apple at $75? Sell it, you’ve doubled your money, I’m sure you can buy it back cheaper. Ignore those guys who tell us the market is attractive based on profit margins, low interest rates, improving balance sheets, they know nothing. The best advice is to take money off the table when you are playing with the house’s money.
Your custodian or broker on the other hand, will definitely not be miserable. They most certainly will shower you with praise as you shower them with trading commissions. The tax authorities will also be very pleased to see your yearly trading reports.
Many thanks to Johnny Carson and Charles Munger for the blog idea.