I use the word “love” loosely, but the concept still stands. As an alternative, consider whether you have any affinity whatsoever towards any stock you’re investing in.
There are 3 pieces here that are important to me to really understand an investor’s mindset around this question:
- How has this affinity come to be?
- What else is part of the investor’s thesis aside from any affinity towards a particular stock?
- Can an investor detach their emotions and make sound decisions?
How has any level of affinity developed?
Have you ever heard people talk about the stocks in their portfolio like these stocks are the “be-all and end-all” of the investing arena? What about when you hear people say the stock price WILL go up to crazy highs from where the stock is currently trading? Do you accept any of this as credible information, or see it as pure delusion?
How deep does the conversation go beyond just surface level commentary? Is there ever a conversation that follows to really understand the investment thesis, or if one even exists?
I can see how emotional attachment towards a stock can happen though. It could result from great experiences we’ve had with companies that are publicly traded so investing in their stocks might be a good idea. We might end up hearing about massive gains on a particular stock from someone we know which makes them look like a hero (let’s park whether or not any gains are a result of luck or strategy, or both), and so why should we not be heroes as well?
We are social and emotional beings, so I can see how affinity towards the stocks we invest in can happen quite easily. I do want to differentiate between having a personal experience with a particular company vs. jumping onto the bandwagon to chase profits because you hear that everyone else is doing it. However, regardless of the source of your emotional attachment, I believe it’s critical to keep it in check.
Is emotional attachment to a stock a valid investment thesis?
I strongly encourage you to have a thoughtful approach towards any investment decision you make, both when you buy and sell a stock. When emotions lead your investment decisions, you can end up carrying unnecessary risk in the form of over-allocating your capital into 1 single trade, poor timing of initiating a position, or clouded judgement on when you should take any or all of your profits.
I believe in picking stocks that will generate a return based on a valid investment thesis. Equally important is to determine your entry and exit points and allocate an appropriate amount of capital towards the position to maintain a balanced portfolio to manage your level of risk.
Your stocks don’t owe you anything. The market doesn’t owe you anything. The stocks in your portfolio don’t care how in love you are with them. Why then would it make any logical sense for any emotion to be part of your investment decisions?
Can you remain disciplined while loving your stocks?
The way I see it, no one knows what a stock will do next in any given moment. If anyone says that they know what a stock will do, see if they are comfortable taking every single penny they own and investing it into this so called “sure thing”, it just doesn’t exist. Plain and simple as that. There is a 50/50 chance a stock will either go up or down, that’s it. Those odds aren’t bad, but I don’t think they are worth betting it all. More so, I don’t believe that loving the stocks in your portfolio will help you generate a return.
Keep your emotional self in check and decouple yourself from what you believe a stock needs to do and instead consider what you need to do to generate profits and remain ahead for the long run. Only you can truly answer if you can remain disciplined if you have any affinity towards the stocks in your portfolio.
Do you feel a rush when your trades are up massively in any given day? Do you feel pain or frustration when your trades move against you massively? Chances are you’re emotionally attached to those trades, which could be a result of affinity towards stocks, lack of portfolio management approach or events that have occurred throughout the life of the trade.
I believe that emotions should be kept out of your investing approach. If emotions begin to enter the picture and if you’re not able to control your emotions, it can lead to bad decisions and potentially permanent losses.
The takeaway
We are all (or mostly) social and emotional beings. We are naturally susceptible to our emotions at times. However, when it comes to investing, my recommendation is that you have a strong investment thesis to ground your decisions around and keep your emotions aside. If you can’t do this, then try to stay away from any stock you have an affinity towards.
To be clear, loving a company is not a bad thing. Investing in stocks you love is not a bad thing. Just make sure that your emotions are not clouding your investing strategy and approach.