I love ice cream.
My wife doesn’t love that I love ice cream, nor does my doctor. But it is my guilty pleasure and I love it.
In fact, if I was to walk into a grocery store and find a half gallon of Breyers’ chocolate ice cream on sale for $2.99 (normally it costs $5.99), I would load up the shopping cart from top to bottom and buy as much of it as I possibly could. Then I’d text my friends, shoot out an email and post a notice on Facebook about the great deal I found. After all, that’s a 50% savings!
But let me turn the tables on you for a second, let’s say I walked a few doors down in the freezer section and found a pile of company stock priced at $15 per share (normally they cost $30/each – again a 50% savings). Most people would turn their cart around and run.
Which begs the question: “Why?”
The answer is simple: emotions and behavior.
There are a lot of intelligent people out there that invest. But when it comes to money, emotions rule the day. Unfortunately for most investors that find a “pile of stock” at a 50% discount the immediate assumption is that the stock is bad. Not that it is on sale – like say, ice cream. Or worse yet, they buy the stock and if it goes down in value they sell it, instead of buying more.
Although we use ice cream to make a point, the truth is that this type of behavior is costing investors real money. Dalbar Inc. did a Quantitative Analysis of Investor Behavior study and found that investors have significantly underperformed the S&P 500 over the past 3, 5, 10 and 20 years. In fact, they have lagged the index by nearly 4 percentage points per year from 1993 to 2012.
4%!!!! That is crazy.
Stock Market or Super Market, it’s pretty much all the same. Sometimes things are expensive and sometimes they are cheap. It’s how you react to prices and the opportunities in front of you that will ultimately determine the satisfaction you receive from your investment – be it ice cream or stock. Sometimes in life a voice of reason can make all the difference. Blooom can be that voice of reason, so that you aren’t “going it alone” with your 401k. It’s kind of like we are riding shotgun in the shopping cart.
*When using the term “stock”, the assumption is that you are utilizing a well-diversified basket of stocks, for instance index funds.
Published on August 13, 2014