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Monday, January 11, 2010

Why The Fellow Sitting Next To Me At Panera Bread Lost a Quarter of a Million Dollars


Recently, I was sitting in my local Panera Bread perusing The New York Times when I couldn't help but overhear the fellow next to me lamenting his loss of $250,000 in company stock. As he explained to his friend, "I really believed in the company. In the section where I worked, we were doing great and making lots of money. Then the stock started falling from $90 per share. The it dropped to $80, then $60, and then $40 per share. I didn't want to sell and lose all that money. Then the stuff really hit the fan..."

How many thinking errors can you find here? I see three: availability, myopic loss avoidance, and denial. But it all started with availabilty.

Notice he says, "In the section I was in we were doing great...". In other words, he considered only a very few facts (those facts most available to him, the decision-maker), namely, that the company was "doing great."

Human decision-makers frequently make decisions with only part of the facts. All the more reason to use naked strategies when buying stocks.

It's amazing what you can learn while eating a bagel.

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posted by Bob at 10:22 AM

3 Comments:

Blogger Copeland said...

Ouch! I did *exactly* the same thing with a green tech stock last year! Wish I had known The Naked Portfolio Manager then...

January 11, 2010 11:23 AM  
Anonymous David bakke said...

More proof that adopting Naked Strategies can sginificantly improve your earnings potential.

Great post

January 11, 2010 9:31 PM  
Blogger Bob said...

Copeland,

Thats why you need to keep reading the blog. People tell me all the time, I made that mistake, or my spouse does that all the time or my business partner makes the availability error. If you keep reading the blog, you will make better decisions in all parts of your life, not just investments.

January 13, 2010 12:54 PM  

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