How Thinking Costs You
An article from The Washington Post titled “How Thinking Costs You” is good stuff. An excerpt:
Four months ago, judging myself to be the next Warren Buffett, I logged on to my Charles Schwab account and did something that in hindsight was astonishingly stupid, even for my own very long roster of financial screw-ups. I clicked over to the trading page and bought shares of Citigroup. The company, like most of the big Wall Street banks then staring down the subprime meltdown, was limping along. The headlines were bad. The chatter on CNBC was pessimistic. I saw a bargain. I saw a company whose credit card bills and offers show up in millions of mailboxes every day. Just as soon as the banks got their write-offs out of the way, optimism would return to the sector. There would be more buyers of the stock than sellers. I would profit. Now here I am today: My investment is down 22 percent. And I’m still holding on to the stock. Am I, as my wife and closest friends sometimes insist, the dumbest man walking the Earth.
More.
Chris Guarino Added:
May 30th, 2008 at 7:42 am
There are many ways markets are viewed and anaylized. What I found to be one of the truest indicators has always been supply / demand and relative strenght. As a financial professional the news I recieved is overwhelming.
Since July of 05 supply , demand and RS told me C was unlikely to outperform not only the market but also it’s peers. Clients who wanted to take action in this stock were encouraged to own the puts or have a reasonable risk/reward ratio in place.
Armando Added:
May 30th, 2008 at 7:51 am
Yes! Just like many “investors” the writer of this article plunked down his hard earned money and took an unexpected loss. He had neither an entrance nor exit strategy. First he buys Citi using a strategy that was not back tested nor even quantified, and now he’s down 22% with no clear course of action….what he should do now is SELL and promise himself NEVER EVER do this again!
myother Added:
May 30th, 2008 at 10:47 am
Don’t feel too bad. I did the same thing last fall except it was Countrywide. You may be right about “How thinking costs you”. It seems no matter how much research I do. Of the stocks I buy 1/3 will be winners, 1/3 will be losers(big loser Countrywide), and 1/3 will bounce around a flat line.
Mark Added:
May 30th, 2008 at 11:31 am
The Citigroup investor is down 22% and holding…perhaps it is time NOW do do the analysis to see if the stock is in a pronounced trend downwards! I suspect he will get a SELL signal from even rudimentary trend analysis. As I read this, I see that it seems to be trading in a stable channel between 21 and 22.10. No upward momentum at all.
Is the writer holding the stock as a sort of self-flagellation?