Why Do Investors Feel Entitled to Every High Water Mark?

[Gregmal]

Curious as Ive noticed and been perplexed by this for a long time, and it again seemed forefront and center after the META earnings(just as a prime recent example). We see it all the time when folks talk "macro" and "the market"....ticker ABC goes on multi year run, then regresses. The regression needs to be analyzed and theres often talk of whether or not "its warranted". Index pulls back 5-10% and "its been bad" for investors. Or "thats why its dangerous to be in stocks". COST falls 10% from ATHs and now its obviously because it was priced to perfection(rather than the entire two decades prior when it was also expensive)...Seems stupid and Im failing to understand why most investors arent agnostic to this sort of pointless fixation/type of analysis. Or if Im missing something and there is a huge benefit to this sort of stuff?

 

If an instrument goes from $50 to $75 from January to September and then in Q4 from $75 to $60....my observation is that many investors, on December 31, would feel like they lost $15. 

[Vish_ram]

It is because of the nature of the human mind to perceive transient prices as permanent. The fixation on HWM is real. Investors feel robbed of any $ that is below that high water mark. 

 

My other pet peeve is, many won't invest in the market when it is all time high and want to wait for the pull back. When the pull back comes, they panic or wait for some more pull back. There is a huge demand for knowing short term market directions and no wonder market prognosticators have a thriving business. 

[hasilp89]

With respect Greg you know why it happens  - people make "investments" in pieces of paper as % holding in a portfolio that needs to keep up with the S&P. As a result the psychological tendencies and misbehavior mentioned above occurs.

 

You on the other hand - 1) Treat your investments as an ownership interest in a business. 2) Periodically reflect on your basis vs. intrinsic value. 3) Remind yourself that you won't get rich by selling great business just because they went up a lot or because it became a tremendous part of your net worth. Its Buffett/Munger 101. 

 

(as for me, I've been guilty of the mistakes and I'm constantly trying to reform)

[mattee2264]

It comes with the territory. 

 

Investors do not just want high returns they want high returns without the volatility. They also want to get rich quick so find it hard to tolerate the inevitable downdrafts and dry spells. It is why people are such suckers for Ponzi schemes. And it is why companies feel pressured to manage earnings and waste a lot of time providing "guidance", "whisper numbers" and employ expensive investor relation teams. 

 

If you are going to be a growth investor the real money is made identifying companies with good long pull growth prospects and then buying and holding them for decades. Over that time period there are going to be lean years and fat years and many false alarms that indicate the growth is coming to an end encouraging a rush to the exits. 

For a quality growth stock you are much better off erring on the side of overstaying your welcome the way that Buffett often gets accused of doing.

 

 

 

 

[brobro777]

Well it's because people aren't investors and they want a lot of money really fast without hard work or discipline

 

I have a buddy who opened an Etrade account back in the 90s because they were offering some kind of bonus and he bought Viropharma for less than $20 and sold it at $100 because the company said some news about the common cold. And ETrade kept crediting his account with this supposed one time bonus over and over again and when he pointed out the mistake, they let him keep all the money 

 

That's the way life should be, money for nothing and chicks for free, so why shouldn't they be entitled to the high water mark? They deserve it!

 

 

 

[Gamecock-YT]

Price is there to serve you, not to guide you. Act accordingly.

[ValueArb]

Maybe its because I charged them fees based on $75?

[Intelligent_Investor]

Im like the exact opposite I get sad I didn't buy more at the bottom when I could have.

[Saluki]

It's the anchoring fallacy.  When it goes down, you feel like lost even if you are still up from where you bought it.  It's why Peter Lynch (and now Buffett) like to remind you that "the stock doesn't know you own it" so it won't go back to even or the high water mark just so you can sell out. 

 

I think it's mistake to also follow the strategy of "if I wouldn't buy it at this price, I should sell it." Because it tends to cause too much activity in your portfolio, which is correlated with negative returns.  And also because there is a "range of reasonableness" with pricing and if you bought when it was flashing green, then held it when it's fairly priced, you shouldn't do anything unless it flashes green again to buy more or goes to red and sell. I suffer from this because as a cheapskate it looks priced to sell before it is done going up. But I'm working on it. 

 

Between anchoring and reviewing your portfolio everyday with fresh eyes, the truth lies somewhere in the middle.  I think I've mentioned before, but I usually print out a 1 pager from ValueLine and take notes on the back about why I like this and what I think will happen.  It keeps me from "thesis drift" or patting myself on the back when the stock goes up, but not for the reason that I thought.  (for example STNG did really well this past year, but it was because the attacks on the Red Sea caused ships to take the long way, and rates spiked for vessels. My original thesis was the old fleet and low order book, which should help STNG which had the youngest fleet. So I'm up, but part of it was luck. Whereas SWBI did well for the reasons that I thought it would. So I'll happy take both wins, but I need to be honest about it, because I won't improve if I judge myself by "resulting" instead of the process.) 

[SharperDingaan]

The more meat for the pot the merrier!

However, ideally not all of them as roadkill ... as there's only so much chilli that one can put with!

 

SD

 

[Paarslaars]

I don't feel like this looking back at ATHs but I do on an annual basis. First two weeks of january my portfolio dropped 20% and I felt like shit, even though everything that dropped was still higher than my purchase price. Silly me... already up back to +10% YTD. Kinda the problem with measuring performance on an annual basis.

 

I agree Intelligent_investor, not going balls deep on some investments has given me more regret.

[rkbabang]

Most people feel the pain of loss much more than the joy of gain.  So they don't feel the gain of going from $50 to $75 as much as they feel the loss from $75 to $60.  So even though they are up in total the unrealized loss from their high water mark hurts more than the unrealized gain from their basis feels good.

 

I read a study that the vast majority of people lose money even in index funds, because they are more likely to sell after a downturn in the market than they are to buy.  This coupled with the fear of missing out, means they are not only likely to sell at the bottom, but they are more likely to buy at or near the top.   To be successful even at indexing, never mind stock picking, you need to put away your fear of loss and your fear of missing out.  A lot of people can't.

 

Edited April 30 by rkbabang

[Gregmal]

You just need to view your cash as migrants, your portfolio as a big liberal city, and yourself, the mayor. It comes in, and the first priority should be making sure its got a nice place to be housed. Dont worry too much about the exact room rates on the daily...over time it just evens out. 

[Gregmal]

Well, Mr. Mayor, looks like 8,380 dollars crossed the border into Checking Account today. 

 

Hmmmm, we got room over in Nintendo for em. They'll like the new Super Mario stuff about to drop.

 

Ah, another 13,899 made their way thru just before dinner, whats the plan?

 

Looks like theres some seats at The Garden available. But gotta be quick, thats been filling up lately, gotta move before its too late.

 

Overall, we are pleased with how we are filling out the population of Portfolio City!

[SharperDingaan]

1 hour ago, Saluki said:

It's the anchoring fallacy.  

 

 

Seldom talked about is that this can ALSO drive very predatory behaviour which needs to be controlled. You may believe that XYZ is a very good 2-5 year investment that you should be exposed to (anchor), but if you're swing trading XYZ; it's a very stupid idea to both excessively wait on your repurchase (predatory), and reinvest swing gains in additional XYZ (predatory). You need to piss off the house, and take the swing gains out of the market entirely. 

 

Lot of folks have done very well selling out BTC in the run up to the halving. Were they to buy back today, they would be up another un-leveraged 16%+; but were they to simply buy back two-weeks out (after the Chinese BTC-ETF take-up is better known), it could well be 20%+. I.E: Predatory delay of BTC repurchase to force miners to sell BTC collateral early, and to force price down via a lower demand expectation and higher supply .... the market at work 

 

But if you put that one month 20% gain into additional BTC, only the house would win. Whereas if you took it off the table entirely, and parked it in treasuries ... it will be available for when the house eventually errs (Nash Game Theory)... and needs to make an offer that cannot be refused; by even the mighty! (GS/WEB preferred share offering). If it never happens, no big deal; ...... but if it does, and you're there; Lenny,  ..... you're made for life!

 

Play your own game.

 

SD 

 

   

Edited April 30 by SharperDingaan

[SharperDingaan]

3 minutes ago, Gregmal said:

Well, Mr. Mayor, looks like 8,380 dollars crossed the border into Checking Account today. 

 

Hmmmm, we got room over in Nintendo for em. They'll like the new Super Mario stuff about to drop.

 

Ah, another 13,899 made their way thru just before dinner, whats the plan?

 

Looks like theres some seats at The Garden available. But gotta be quick, thats been filling up lately, gotta move before its too late.

 

Overall, we are pleased with how we are filling out the population of Portfolio City!

 

Very good! 

 

SD

[valueseek]

2 hours ago, Gregmal said:

Well, Mr. Mayor, looks like 8,380 dollars crossed the border into Checking Account today. 

 

Hmmmm, we got room over in Nintendo for em. They'll like the new Super Mario stuff about to drop.

 

Ah, another 13,899 made their way thru just before dinner, whats the plan?

 

Looks like theres some seats at The Garden available. But gotta be quick, thats been filling up lately, gotta move before its too late.

 

Overall, we are pleased with how we are filling out the population of Portfolio City!

 brilliant. one of the best seen in a while