My office chair and inheriting stocks - opinion

Many of us find it psychologically difficult to admit that we have picked the wrong stock. It’s hard for us to say that we made a mistake.

Calculating taxes (photo credit: INGIMAGE)
Calculating taxes
(photo credit: INGIMAGE)

“We Jews have a special attachment to the Book. The study of page after page in tomes yellowing with age was obligatory.”  – Theodore Bikel

I like to refer to it as being consistent and dependable, but others would argue that I am not a big fan of change. For the last 26 years I have lived in 4 apartments all within 25 m. of each other. I sing the same Shabbat tunes at each meal week after week, have bought the same pair of New Balance cross-trainers for many years, etc. The list goes on and on. I am sure my beloved wife and children could add more items than I care to think about. In fact last week we met with a caterer to plan an upcoming Shabbat celebration and he suggested serving platters of sushi. I was actually offended at the suggestion and said: “No the pink salmon and white herring will be just fine. We eat herring at a Kiddush, not sushi!”

Earlier this week I had a “change” trauma. After much nudging, both subtle and more forceful by both work colleagues and the aforementioned family members, I gave in and bought new office furniture. Included in the purchase was buying myself a new office chair. I had a very emotional and tearful goodbye with my old chair, which was basically down to just a bare seat and swivel which I had since I opened my company 12-and-a-half years ago. But lest you think I am a new man, don’t fret, I bought the exact same model that I had! This whole new chair business reminded me of the episode of All in the Family where Mike accidentally breaks Archie Bunker’s favorite chair.

Edith: “[after finding out his chair broke, Archie throws a tantrum and lays across the dining room table] Archie you better be careful, I mean you weren’t this upset when you lost your father.”

Archie: “I didn’t sit on my father for 28 years!”

HOW DO YOU plan an inheritance? (credit: REUTERS)HOW DO YOU plan an inheritance? (credit: REUTERS)

Recently a new client opened an account with me after receiving an inheritance. He transferred this inherited portfolio from a well-known brokerage firm. We sat down to review his current holdings and adjust the portfolio. Some of the client’s stocks were showing large losses. However, he explained that since he had received them as an inheritance, he felt awkward about selling them. He felt attached to them and didn’t think they should be sold. He then said he realized that such emotions were not a great way to base investments, and he decided to wait for them to move back up to the price for which his recently deceased father had bought them. Then, he would sell them.

This is a very common scenario. Children often refuse to make changes to a portfolio that they have received as an inheritance. Very often, this is due to sentimental reasons. In other cases, investors stick with a losing position for years in the hope that it will return to the original price they paid for it. As I have mentioned numerous times, Rabbi Moskowitz, my high school rabbi, used to say: “Don’t let emotions get in the way of your thinking process.”

Don’t think that this is just about inheritance. Often investors get a “hot” tip from a friend, do some research, and decide to invest because it seems like an obvious winner. But when you go online and check the stock price, you see that it’s dropped. So you decide to follow the policy of being patient. As time goes by, you keep checking, but the stock keeps dropping. Eventually, you become living proof of the old adage that patience is a virtue. The stock market may be moving up, but you are stuck with a loser.

Many of us find it psychologically difficult to admit that we have picked the wrong stock. It’s hard for us to say that we made a mistake.

Very often, the longer you hold onto an under-performer, the more money it costs. The reason for this is that the investor could have put her funds into something that actually made money. Therefore, stubbornly holding onto a losing stock will only cause financial harm. In economics, this situation is referred to as opportunity cost. Opportunity cost is defined as the cost of an alternative that must be forgone in order to pursue a certain action, or the benefits that could be received from taking an alternative action.

It’s one thing to hold onto a broken down chair. It’s another to stubbornly lose money because of some emotional attachment to a stock. Take some time to review your portfolio and reassess if you are holding positions because of rational, business growth reasons or whether your holdings are based solely on some emotional attachment. If it’s the latter, you may want to think about making a change.

The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.

Aaron Katsman is the author of Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing.; [email protected]