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love stinks

Why Love Does (or does not) Stink

Posted: October 23, 2012

Author: Jonathan Hoenig

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Dear Jonathan,

I just read your Smartmoney article “Love Stinks” from 2006 and was surprised to read that you think “love” should be avoided when investing.  I am a fan of your work, though I wonder, is love really the enemy?

Love is conditional.  It’s based on rational values that are necessary for survival.  To stay with a partner who no longer reflects your value system is to be irrational – lost in lust – in a fantasy world of what was or what might have been.

Investment strategy is similar.  Instead of pursuing rational, self-interested love, some investors can get trapped by lust.

You wrote: “it’s your head that should give the orders, not your heart.”  I completely agree one’s mind should be in control, though, I think love is the IDEAL ingredient in a healthy investment strategy.  It is pure lust that should be avoided.

Respectfully,

Nicole

 

Nicole,

Thank you for your thoughtful response to the article.

I think we are in agreement on principles but not terms.

In practice, many people “fall in love” with a stock for irrational reasons: a personal attachment to the company’s product or shares having been bequeathed by a beloved relative.

It’s that “love” which prompts them to act irrationally:  to hold investments, oftentimes large positions, in exposures which are not performing and have low probabilities of performing.

What you call “lust” is what I refer to as “unrequited love”, meaning love (investment) that isn’t performing in the manner we had selfishly wanted.

Assuming the motive is profit (as it ultimately must be), the price action of the security alone must arbitrate.  The approach in both contexts should be benevolent, but grounded in reality.  “If a relationship, be it with a person or a stock, isn’t serving your needs, push yourself to cut the cord.”

With my thanks and best regards,

Jonathan@capitalistpig.com


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