My recent post from yesterday talked about how it feels like an eternity when going through a period of negative performance in one’s portfolio. And how relative pain is remembered more than relative joy during a downturn. Continuing from that topic: The proverbial “grapevine” makes matters worse.
Marvin Gaye’s hit song, “I Heard It Through The Grapevine” is about gossip, but for our purposes, it is about two investors, one is producing positive returns in his portfolio, the other is producing negative results in his. This is almost always the case, no matter how bad things may get for our investor, somewhere somebody is making money. Those people will certainly tell all within earshot, to make matters worst. Most investors have a very selective memory. We all seek approval, and we all would like to be considered astute, sophisticated, and successful.
During social gatherings or casual conversations it’s not unusual to stress the positive and repress the negative. So the investment winners in our portfolios tend to get talked about more than the losers. Investors with disappointing recent performance will say nothing. After all, who wants to broadcast failure? So, the winners brag, and the losers keep silent. Soon, it may seem to our poor investor like everybody with an IQ over room temperature is making money except him.
So the temptation to second-guess himself grows and grows. If only his advisor had been more astute, he would be making money too. Perhaps it’s time to try something else like all those other smart investors are doing.
Once this kind of cycle starts it can deteriorate into a tail-chasing fiasco. At least dogs that chase their tails remain on level ground. Investors can dig themselves into a hole as they ratchet themselves ever downward chasing yesterday’s hot stock, hero fund manager, or top performing mutual fund.
It’s easier said than done, but we have to ignore the grapevine. And the braggarts of today, will become tomorrow’s silent listener.
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