Friday, December 23, 2011

Feeling Negative? Overcome It!

As this site has grown in reach over the last couple of years, the amount of reader feedback I have received has accelerated. Unquestionably, the articles that generate the most feedback are those related to particular securities (as opposed to a general article on investor behaviour...like this one). However, while the majority of sites stick to writing about stocks on which they are bullish, I also tend to write about stocks in which I'm not interested, in order to discuss the reasons that add to an investment's risk or subtract from its return. As a result, I've been in a position to observe some interesting reader behaviour.

If someone does not own a stock, and they come across a positive article about it, it doesn't seem to bother them much. I can tell because I have never received hate mail over this! On the other hand, if someone does own a stock, and they come across a negative article about it, they seem to take it personally! This results in my receiving racial slurs, demands for public apologies, and threats that I will be reported to the SEC.

But for everyone who actually initiates a personal attack, there are likely many others who managed to overcome the strong emotional reaction that they felt. Nevertheless, their decision-making ability with respect to this particular security may still have become marred with an emotional bias. I must admit that when I read a negative article about a stock on which I am bullish, I too feel a twinge of anger at the author (though this tendency has definitely dissipated over time as I have gained more experience). By recognizing this tendency, however, investors can take conscious steps to force themselves to have an open mind and to objectively consider the author's points. By doing so, investors can avoid some of the psychological investor pitfalls we've previously discussed.

There are a vast number of factors, many of which are quite subjective, that go into a decision to purchase a particular stock. As such, it follows that even people with similar investment philosophies will disagree on whether a particular security makes for a good investment. And that's okay: investors who turn out to be correct about one particular security will not necessarily be right about others. In the meantime, we can't tell who's right; all an investor can do is try to learn and thereby improve his "batting average", as Warren Buffett likes to call it. Key to this is overcoming the personal feelings involved in objective discussions of relevant securities.

6 comments:

Anonymous said...

I didn't realize you received hate mail over advice - they should be thanking you instead. The few times I've commented is usually when you have a position in something I feel negative about. Such as, if I think the stock doesn't lend itself to meaningful analysis on a going concern basis (e.g. RIMM) or is highly suspicious (IOT comes to mind).

Anonymous said...

I'm really a bit shocked that people would respond the way you have described. I know as stockholders we consider ourselves the owners of the company but that's taking it a bit too far. I love it when there are articles on stocks I own. I'll use all the help I can get in evaluating stocks. That includes both positive and negative opinions. Thanks for your work.

Lew

Anonymous said...

Saj:

Love the blog, including all of the positives and negatives. Keep it up. It is great to see examples of what NOT to buy (even when they happen to be on my own list).

Have a great new year-

Your friends at the SEC (just kidding).

buff_butler said...

I'm in Canada. I can relate to this in regards to my opinion on real estate as an investment right now (and I'm sure in 2006 in the US).

People tend to take investments personally. The funny thing is that shouldn't be personal in any way. Hopefully the people sending those emails will pause for a second to wonder if this behavior is similar to that which caused the housing bubble.

Anyways this strong personal bias seen in others has helped me notice issues I'd have or can have when investing.

Excellent post as always. I've learned a lot from you.

mik said...

As Munger puts it: " I say that I’m not entitled to have an opinion on this subject unless I can state the arguments against my position better than the people who support it."

The rest is just confirmation bias.

Stable Investor said...

Your blog has a high sticky factor. If one reads one post, the reader is bound to stay longer and read more posts.
Hate mails are just a way of appreciation and confirms that the content is good.
And as they, if someone talks negatively about you, it means that you are doing a good job.
Keep up the good work.

Follow by Email