Stop Investing Like A Sports Fan! (And Go Braves!)
THE BIG THING I WANT YOU TO KNOW:
I’m rooting for the Braves even though they’ve only won the world series once in my lifetime because I’m loyal to my home team, but friends, this is no way to invest. Many people feel loyalty to companies they’ve worked for and put everything in that stock, but what happens when things turn sour? They lose everything. Make sure you’re a diversified investor, not a sports fan investor.
While it’s hard to have a healthy heart and love sports in Atlanta…
it’s Better to be a sports fan than a stocks fan.
In my lifetime, the Braves have made it to the world series five times and only won ONCE. Today (Wednesday, October 9th) I am rooting for the Braves to win Game 5 in #Relentless fashion!
I grew up in Georgia, and I feel a certain loyalty to GA sports teams (it has been a painful loyalty…sorry Falcons).
But every year, I come back to the games feeling hopeful. Logically, I know the chances of us winning the world series are very low, but I’m an Atlanta fan through and through! No matter how many times my heart is broken, I still show up and cheer them on.
There’s this constant hope no matter how many times you get crushed, and that’s great for being a sports fan, but I’m amazed to see so many people come into my office who invest this way.
Let me tell you a story about an investing fan that lost thousands of dollars and:
why most people stick with just one company.
how a lack of diversification can put you in a very dangerous position.
how diversification is the answer to healthy investing to reach your dreams.
while we commend your faithfulness, too
many people feel loyal to companies they’ve worked for and it is hurting their financial future.
So many people come into my office and bring me stocks that they are connected to like a sports fan. The stock may have lost significant value, but no matter what they’re going to keep holding on. If you ask why it’s usually because of loyalty.
The most common thing I see is people investing in the company they work for.
*Some people don’t have a choice because their benefits come through private stock, so they can’t drop it, but I see many people investing in companies they no longer work for…simply because of loyalty.
I’ll never forget this story
one man’s loyalty cost him hundreds of thousands of dollars
He had worked for a company that had a private stock that held the entirety of his 401k. When he left the company, he had the ability to move his money out or he could leave it in for a specified period of time.
When I met him, he had the right to move his 401k out. All of his investments in his 401k were in this one particular stock, and it was a private grocery stock. If something happens to this company, I told him, he’s opening himself up to multiple points of danger. It could be the market as a whole dropping, it could be some scandal at the top of the company, or anything else. He wasn’t diversified at all, so he was in a very dangerous situation.
The way we think about investing is spreading your risk out. We can’t take away the risk, because then there’s no return.
If your team isn’t the one team that wins the world series every year, you might lose…and you might lose spectacularly
this is why diversification is so important.
Owning multiple stocks in a variety of companies protects you so that any one company going down won’t ruin you.
If we spread out the risk to multiple companies, you eliminate a lot of risk, like a scandal at this one company or one sector (grocery stores in this case) going down in the market. This gives you more safety.
I told him all of this and was feeling really good about my presentation, and then I get a call from him a week later saying “Nah, I think I’m going to stick with them (the grocery company) because I just believe in them.”
Low and behold, about a month later, Amazon buys Whole Foods…
Suddenly, there’s intense competition because Amazon likes to offer lower prices than anyone else, driving other stores out of the market. The independent grocery chain this man had been a part of plummeted in value.
It wasn’t because of the way they ran their business or a scandal, but because an outside source that no one could’ve predicted swept in and bought Whole Foods causing all other grocery stocks to drop. His entire 401k, over one million dollars, was in this company and it lost over $200,000.
This is just one story out of a dozen I could tell you about people I’ve met who, for whatever reason, remain loyal to one stock and suffer for it in the end.
there’s no way to predict what’s coming in the market
but there’s no reason to add UNNECESSARY risk.
As one of my mentors said, there are different types of risk: there’s an intelligent risk and then there’s a risk for risk’s sake.
Our goal for investing isn’t just picking the best companies, we want to figure out the most intelligent way to take the risk, and then we want to spread that risk so we can have the better reward and lower the downside, eliminating the number of things that could come along and crush your portfolio.
How diversified is diversified?? Many people we work with own pieces of thousands of companies. That way, one going down really doesn’t do a whole lot of damage.
So by all means, root for the Falcons or the Braves year after year no matter how many times they let you down, but PLEASE, don’t invest this way.
Diversify, diversify, diversify.
Forget loyalty and be safe.
What is your favorite baseball memory?