The Trials and Travails of Investing

Getting involved in stocks and bonds is not for the faint of heart. Investing has some of the most challenging decisions of any activity you can imagine, and they often must be made with very little time to consider the options. A single misstep could potentially ruin the investor’s financial future.

People think of the challenge of choosing between stocks, funds, and other instruments as the hardest part of investing. While that process is indeed difficult, it pales in comparison to some of the other things investors face. After all, buying Motley Fool stock can make things much easier.

Ethical Gray Areas

Most people don’t have much trouble with the obvious ethical situations. But there are certain circumstances that can come up in which there is a lot of gray area. Choosing which side of the issue you favor can be difficult, especially when both options present positive and negative moral elements.

An example is insider trading. When it’s clear that an investor is receiving specific information under circumstances that restrict others from that information, the ethical choice is clear. But just how specific and just how restricted it is are difficult to define clearly.

Another good example is whistleblowing. While there are legal protections for whistleblowers who suffer retaliation after reporting impropriety, sometimes people struggle with deciding whether it’s really fair for innocent people to get caught up in legal action that results from the actions of others.

The Wells Fargo scandal is an illustration of that. The laws were broken by one group of people, under the implicit instructions of another group, but the punishment of Wells Fargo befell everyone in the company. It’s the job losses and other problems suffered by the unwitting accomplices that make it so tough to choose whether to report things.

Choosing “Trigger Moments”

Buy or sell? It’s the most fundamental question in investment. When things start to go downhill, at what point do you give up on your hopes of a recovery and cut your losses? When things go uphill, at what point do you end your greedy delay and cash in?

No doubt, it’s an incredibly tough dilemma. It’s a decision made largely in the heat of the moment, so many people let emotion get the best of them. But reason must win out.

It’s a financial decision, not an indication of your prowess as a trader. The decision must be made based on returns. You should consider what you have put in financially, look at where the current value stands, and take an honest and objective look at what to expect next.

Any investor would have loved to snatch up shares of Chrysler for almost nothing in 1982, then sell as Lee Iacocca and the K Car revived the venerable automaker. But at what point had enough K Cars sold? When was the stock high enough to suit the investor? The difficulty in this decision drives investors crazy.

Giving Up On An Old “Friend”

The reason that Chrysler got so cheap 35 years ago was that a lot of longtime investors finally found their trigger moment and gave it the boot, many of them never coming back. Certain stocks are as reliable as T-bills, quietly chugging along with respectable returns. Never flashy but always secure.

Then things change, something fundamental in the market shifts. And overnight, the old standby is falling apart.

Mobile phones had that effect on landline manufacturers and utilities. Automobiles did it to saddlemakers. Companies that seemed like they’d be there forever were gone in an instant.

Just as you have to make a short-term decision on when to let go, you sometimes have to re-examine a stalwart investment and understand that its time has come. In light of the wealth and stability it has brought you, that’s tough, but it’s ultimately a financial decision only, not a sentimental one.

Investing is complicated. It’s full of decisions that many people hate to make, and that’s why so many people let a manager take care of these tough calls. It reduces stress, de-clutters their life, and gives an objective voice to the decisions being made with the money. But for the hands-on investor, those decisions can be managed without outside help, as long as the criteria are objective and made from a strong financial and ethical position.