How to Invest for Losses and Misery…and ‘Active’ vs. ‘Passive’

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  • on August 13th, 2012

I hear most awful investors say the same thing…’It will come back’.

I hear the press cry for the death penalty on ‘active’ investing.

Stocks may come back, but it takes only one that does not to leave a major hole in your portfolio. That ‘one’ can only be stopped with ‘active’ investing.

Tips, penny stocks, airlines, component stocks and options are all on my list of things that will make your investing life miserable, but if you really want to invest for losses long-term, don’t open your statements…get passive.

It makes me cringe when I hear investing horror stories because they all start out as a bad idea and a small loss. We are all guilty of letting trades become investments. The more you do it, the more you will lose.

What generally follows the statement ‘it will come back’ is a long period where people do not open their statements or look at their losers. It’s the investing sledgehammer. You must open your statements. You have to monitor your positions and your advisors. You need to prune and garden your portfolio.

For Rachel, things were golden until Facebook $FB imploded this month. She was checking her Stocktwits ‘watchlist’ on her iphone app 5 times a day. I knew this was too much but I was glad she was engaged. I told her stocks go down. I am making her look at her account to think about her Facebook loss. She does not want to look or talk about stocks at the moment. The good news is she told me to sell her Facebook stock on Friday. She is sick of seeing red. I like that. She should be sick of seeing it. She is active.

I was with a very smart friend last week and great homebuilder who was holding a few thousand Facebook shares that he bought at the IPO. He hated Facebook the product but now with his loss he has become an active user. He uses Facebook to talk and argue politics (which makes me wonder if Facebook is beyond regaining it’s momentum). This is so normal for investors with big losses. They rationalize. They are active in all the wrong ways.

Like politics (right wing vs left wing), the investing business has become polar around the terms ‘active’ and ‘passive’. Today, active is dirty and passive is holy. I say always be active when it comes to your money. The more active the better. Open your statements, sell your losers, think about investments and trends with momentum and be scrappy about your money.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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