Beware of the “It Must Be Fate” Investment
August 26, 2010Somehow I found myself in a conversation the other day concerning what we perceived were the most interesting investment choices we knew friends/family to have made. The one that immediately came to my mind was the one a family member had the misfortune of being a party to.
At the time, I was working as a financial advisor and had as some of my clients my family members. (FYI this can be very interesting and demanding!) So I was researching a particular stock for a client when my phone rings. On the other line is a very excited family member. Once I get him calmed down so I could understand him, I listened to the cause of his excitability. Evidently he was walking home from the store when this piece of paper fluttered effortlessly in front of him.
He said he initially ignored it until the paper found its way to land in front of him. He picked up the paper and read the information on it. Something I’m sure a lot of us have run across before – usually via a fax or in our junk mail folder – the next up and coming stock investnment. And the price of the stock? Less than a buck! What a great opportunity this was, being involved in a ground floor opportunity in the next up and coming biotech (or pharmaceutical) company. And all for less than a buck a share. Well needless to say, this member of my family needed someone to purchase around five thousand shares because “it was fate” that this opportunity literally landed at his feet.
Now, I didn’t just blindly tell him that this was not fate but instead a piece of paper that somehow had dodged the trash can and was living its final days fluttering around looking for a home in an unsuspecting victims home. So I gently let him know what my thoughts were on this investment but also told him I would research the company as best I could.
I’m sure you can surmise what I found out in regards to this company. So I passed on my findings to my client and recommended that he save his money. I soon found out that he was a much bigger believer in “fate” then I thought. Despite my rational explanation and research, he still wanted to purchase the shares. Well at this point at least I could save him a few bucks on commission costs.
So I tracked the stock for a while and no big surprise here, the stock ticked up for a brief period of time and I called him and recommended a sell. “No way,” I was told, “this things going up” and he wanted to stay in. I’m sure you know what happened next, and it was not a pleasant ending.
So the next time a paper flutters your way, please put it out of its misery and send it to its resting place, the trash can.