Emotional Investing: A Vegas Tale
INVESTING"Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas." — Paul Samuelson
In June, I attended The American Institute of Certified Public Accountants’ (AICPA) annual conference in Las Vegas. While not a CPA, it’s open to all tax and financial professionals looking for advanced tax, estate, and financial planning knowledge. Rachel (my wife) came with me this year to temper my excitement for spending 3 days in Vegas with 3,500 accountants…
One evening walking back from dinner, this game caught our eye. You sit at the table, pick a favorite horse, and 30 seconds later a magnet under the table ultimately determines the winner. A new race begins and the cycle repeats. To be clear, there is absolutely no strategy. However, betting $1 per race provides inexpensive entertainment for those that aren’t big gamblers.
We sat down, invested1 $10 in the machine, and ten minutes later had doubled our money. Rachel immediately cashed out before she could hear my request to keep going. The excitement that comes from a table of strangers screaming “go, go, go!” at plastic horses they have no influence over had consumed me. My wife is more restrained.
The next evening, we returned to try our luck once again at the plastic ponies. We lost $20 in about half the time it took us to win it the night before. Vegas took its revenge. I frenetically instructed, “put in another $20!”, but Rachel had already left the table. Thankfully, my wife knows when to hold 'em, knows when to fold 'em, and knew when to walk away.
In retrospect, this silly game reminded me how our emotions can influence financial decisions and cloud our judgement. Losing $10 in Vegas over 3 days is one thing. But imagine how emotions can impact money decisions when there’s a lot more on the line?
We quite often see emotional investing: keeping watch over all things financial to a point it’s all-consuming. Monitoring the ticker rather than having breakfast with the kids before they’re off to school. Overreacting to tidbits of information before getting a big-picture report. Rather than enjoy vacation, someone’s eyes are glued to the stock-price banner phone alerts. They aren’t going to miss one single thing. Or, are they actually missing the most important things?
Measuring sticks for success are different for each of us: they should be. Yet when emotional investing takes over one’s life, it can lead them astray. Portfolios are a big-picture plan. They should be diverse, holistic, and touch several areas of investing. Being emotionally tied to the numbers game likely means someone else in your life is missing out on the best part of you. Your partner, college buddies, golden retriever, children, or a favorite hobby. There’s nothing wrong with keeping tabs on investments: it’s essential. However, all-consuming actions and emotions cloud judgment and make it difficult to see things clearly. It inhibits rational decision-making.
Our advice?
Don’t do it.
Turn off your closing bell alerts and enjoy dinner with your family. Stop jumping here, there, and everywhere in the stock market. Spend that time at the beach with friends. Don’t obsess over the ticker tape. Instead, obsess over planning time with the people you want to make crazy-great memories with.
Knee-jerk reactions do not make for sound investment strategies. Neither does chasing plastic horses around a 10-foot track. But, if you choose to ignore Mr. Samuelson’s advice for something that looks more like a Vegas casino, we wish you the best of luck!
1Disclosure: I’m using the term “invest” very loosely.