How Do You Define Investment Success?

Filed in Money by on January 14, 2014 3 Comments

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It happens to me all the time and I find it quite amusing. I’ll meet someone new at a cocktail party, they find out that I am a finance professional, and, invariably, they try to impress me with their stock picking prowess. It usually goes something like this:

“Yeah, I bought an oil sands stock a couple of months ago and I’m just killing it! I bought it at 12, and it’s trading at 35!”

“Biotech is where the future is. It’s the next internet! Most of my portfolio is in biotech.”

“Clean energy stocks! Obama’s going to pump billions of dollars of federal money into these companies. I’ve already made 20% and they’re a rocketship going straight up!”

Yes, these people apparently find a lot of joy and satisfaction in being able to regale their fellow guests with their stories of investment success, with the not so subtle implication that they are both smart and successful.

I have worked in the finance industry long enough to know what is going unsaid in these conversations.

“Yes, I did buy an oil sands stock at 12 and it soon went to 35, but unfortunately I didn’t sell it then. It later tanked to 7. I held it for another year hoping it would go back up, but it didn’t, so I sold it. I ended up taking a beating on that one.”

“I was right, the biotech industry is doing great, but I somehow picked the wrong biotech companies to invest in. My portfolio is down 30%. Ouch.”

“Obama couldn’t get Congress to agree to continue funding clean energy, and at the first whiff of that all of my clean energy stocks plummeted.”

The untold story.

Of course, not every individual company stock investment is a bad one. Many work out quite well. But what you hear at cocktail parties is most decidedly only the side of the story your new friend wants you to hear, and which puts their portfolio performance and them in the most favorable light possible.

But this raises another, more important question for you to consider: How do you define investment success? If your goal is to accumulate investment anecdotes you can brag about at a cocktail party, then continue picking individual stocks and industry sectors, especially risky ones, with the help of your trusted (hah!) stockbroker.

But if instead you define investment success as building sufficient wealth to send your children to college, retire comfortably, travel the world, and/or be able to contribute to worthwhile charitable causes, then stick with a well-diversified, low cost, buy-and-hold portfolio. You won’t have any amazing stories of eye-popping investment success with which to impress new acquaintances, but you’ll be a winner in the way that matters most.

About the Author ()

TIM MCINTYRE retired in 2004 from his position as president of Applied Systems after facilitating a successful sale of the company. At only forty-six years old, he made the unusual decision to fully retire to pursue other interests and simply enjoy free time. As a hard-driving Type A personality, this turned out to be a significant challenge for the Notre Dame and University of Chicago-educated MBA, CPA, and Certified Cash Manager.

Comments (3)

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  1. Leslie says:

    Very True Tim

  2. Edward DeMartin says:

    Tim- I have used a low to no risk investment strategy for many years, so haven’t any successful investments at all- unless no big losses can be considered a success. But if you have any tips, let me know! LOL, Ed

    • Tim says:

      Ed, I think you are probably just being humble — I bet your investments have done pretty well over the years. If not, it is likely due to having too much money in extremely low risk, low return investments like treasuries, money market funds, CD’s, and the like, and not enough invested in stocks. Stocks earn the highest return, and while they are risky, they can be made relatively more safe (less volatile) by being very well diversified (i.e., holding a large basket of different stocks).

      Call me off line if you’d like to discuss this further. And thanks for the comment!

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