The Zurich Axioms By Max Gunther
Previous Chapter | Next Chapter
If it doesn’t pay off the first time, forget it.
Perseverance is like optimism: It has always had a good press. “If at first you don’t succeed, try, try again”, an ancient English kind is reported to have remarked, having watched a spider build a web after many bad starts. That is certainly good advice for spiders. Also for kings, who are usually born rich. For ordinary men and women like you and me, struggling to make a buck, it is advice that should be heeded selectively.
Perseverance can serve us well in many areas of life. You’ll never get a straight answer out of the Motor Vehicle Department without it, for instance. In 1943, under various proprietorship and copyright arrangements, has poured much of its great river of income into the University’s thirsty treasury.
The woman of our story was charmed by this when she learned about it. She had determined back in her college days that if she ever became an investor, she would invest only in companies hat seemed to be doing some substantial social good. Now that she was nearing age forty and at least had a little spare cash to play with, she decided that Sears was what she wanted.
There is nothing wrong with choosing investments on this kind of basis, as long as you don’t forget that you’re mainly in the market to make money. If you reject investments that for one reason or another offend your social or political sensibilities, that can narrow your field of choice somewhat but not necessarily badly. There are plenty of outfits like Sears, good corporate citizens that also make a bundle of money when things are going right.
The woman bought her first little packet of Sears stock. Unfortunately, the stock didn’t repay her for her affectionate feelings. For reasons that nobody can ever sort out completely either before or after the event, customers chose the next twelve months to stay out of the stores and off the phones. The share price of big retailers, including Sears, nose-dived.
Acting on good advice – see the Third Axiom, on hope – she sold out, taking a 15 to 20 percent loss. The stock price continued to slump. She put her money in a bank.
The stock went nowhere for a year. Then, to everybody’s surprise, it suddenly leaped. It shot past the point at which the woman had sold it and continued to climb.
She watched, baffled and angry. The higher the price went, the madder she got. She had the left-behind blues and had them bad. How dare the stock run away from her like that?
The stock owed her, she felt. She made up her mind that she was going to squeeze some money out of it if she had to wring its neck.
Perseverance was setting in. She called her broker and said she wanted to buy back into Sears. He argued with her. The price was pretty high, he felt. It was so high that the stock’s yield (the yearly dividend payout expressed as percentage of the price) was below 4 percent, which was historically unusual for Sears. But she stubbornly insisted. She wanted to get back into Sears and make it pay her what it owed her.
It didn’t. It slumped again.
Ans so it went for years. Her determination to wring a gain out of that one investment blinded her to other opportunities, other good moves that she might have made. She ‘chased’ Sears (as speculator call this kind of behavior), chased it over the tops of bull markets, nearly always losing money because this obsession clouded her judgment and fogged her vision.
Finally, in later 1982, she had the satisfaction of owning Sears shares when they turned in a winning performance. That seemed to get the fixation out of her system. Sears stock had at last paid its debt to her, she felt.
But had it really? In all the years when she was chasing Sears, her money could have been in other ventures – ventures that were coolly chosen on their merits rather than out of sheer stubbornness. Some of those ventures might have made her rich. The Sears chase had left her only slightly better off than when she had started – and there had been times when, because of her refusal to abandon it, it could have made her a heavy loser. Only by blind luck had she come out a little bit ahead.
Is that any way to run a speculative program? No, but it is typical of new speculators. Even more seasoned speculators will sometimes chase an investment out of sheer cussedness, determined to squeeze some juice out of it at all costs. For reasons that I never clearly understood, Frank Henry kept buying in and out of real estate in the vicinity of Morristown, New Jersey, when he really ought to have had his attention elsewhere. He had lost money on a real estate venture there, and he was damned if he was going to sit still for it.
I had the same kind of thig about IBM stock at one time and have only partially cured myself. The doggone stock owes me money, and though I don’t trade in it anymore, I do keep imagining myself buying IBM puts or calls and getting irritated when they rise without me.
It’s human but silly. How can an investment medium ‘owe’ your money? A person can owe you. If that person fails to pay up, you have a right to dun him or her for the money and to get upset if the irresponsible behavior continues. But if you lose money on a precious metal or a work of art, it is illogical to personify the investment medium with thoughts about ‘owing’. Not only is it illogical, but it can lead you into the chasing kind of behavior that is likely to cost you still more money.
You lose some money on Sears stock, let’s say. Of course you want to gain the money back. But why does the gain have to come from Sears?
A given gain will be the same whether it comes from Sears or any other investment. No matter where you win it, it’s still money. With a whole wide, wonderful world of possible ventures to choose from, what is the point of getting obsessed with the single investment in which you had a loss? Why persevere with Sears at a time when other investments, coolly considered, may look more promising?
The reason for persevering are emotional and not easy to sort out. The thoughts about owing come from personification of the speculative entity, as we’ve noted. “This investment took money from me, and by God I’m going to haunt it until it pays me back!” Mixed with this are vague feelings about vengeance. “I’ll teach that stock to make a fool out of me!”
Then there is the wish to have one’s judgment vindicated, which we looked at under another Axiom. “I’ll be proved right in the end.”
All these emotional responses, setting and bubbling together, produce a state of mind in which the speculator’s thinking goes haywire.
Rising above this emotional turmoil is no easier than a lot of other internal adjustments a speculator must make, but you’ve got to do it. As I remarked before when we were studying another difficult mental maneuver, this isn’t a book of psychological counseling, and I have no tidy little shrinkish thoughs to offer If you have trouble getting over an urge to persevere in a losing venture, maybe a talk with a friend, spouse, or bartender will help. Or it might clear your head to go to a good movie or a concert and forget your troubles for a few hours. A four-mile walk does wonders for me. Each of us finds his or her own route to salvation.
Somehow or other, you must defeat the wish to preserve when perseverance will lead you astray. The ancient king’s apothegm, as applied to speculation, needs to be quite thoroughly revised. If at first you don’t succeed, the hell with it.