A love affair with any company or investment has the potential to cost you plenty.
Take Uma Swaminathan, a retired schoolteacher from New Jersey in the US.
Last year, Mrs Swaminathan found herself excited about the prospect of Facebook listing on the US stock exchange.
A casual investor, she felt a personal connection to the company, as she’d used Facebook to connect with friends and family for several years.
That’s the point where emotion trumped logic.
This connection led her to make her biggest ever investment in one company.
While she waited for her buy order to go through on Facebook’s opening morning, 5,000 shares at $41.25, she called her son who quickly told her to cancel the order.
Unfortunately, due to a major trading glitch on the day, Mrs Swaminathan’s order wasn’t cancelled and by the next day Facebook shares closed at $34.03.
Now while there’s no doubt the order should have been cancelled, we’ll focus on the behaviour that led her to that decision to place that order in the first place.
Mrs Swaminathan had developed a relationship with Facebook that had led her to believe it was a great company and in turn, would be a great investment.
Investors might buy a company because they use its products, shop there, work there or have done copious amounts of research on it.
This amount of personal and emotional investment can leave the judgement of a financial investment very clouded, even in respect to research, as markets and company fortunes can change very quickly.
Yet emotional attachments last longer; owning a specific company or investment can invoke feelings of pride and bias, which can lead investors to irrational decisions.
Don’t love any company or investment because they certainly won’t love you back!
Peter Mancell is a director of Mancell Financial Group and FYG Planners AFSL/ACL 224543, www.mfg.com.au This information is general in nature and readers should seek professional advice specific to their circumstances. Looking for the best financial adviser in Australia? We think we’re it.
