As Financial Advisors, we often serve clients who are related or in the same family group; and, naturally, they tend to “talk” about each other.
We keep everything confidential—so their stories are safe with us—but most times, we tend to hear more than one version of the same tale from different family members, especially when it comes to the latest “hot stock tip”.
A very common paradigm is the “hot stock tip story.”
This story usually begins with a client who becomes impatient with our carefully planned investment strategies.
While professionally managed stock portfolios do well over time, problems can arise when inexperienced “investors” take a gamble with their money by making impulsive decisions based on guesswork and rumours (instead of analysis and experience).
A great example is one gentleman (Andrew) who got a little aggressive when he felt that he wasn’t getting enough of an immediate return on his investment.
He believed that he could do better, so he withdrew $100,000 in order to purchase 10 stocks at $10,000 each.
Andrew immediately began bragging to everyone who would listen (including his older brother John, who is also a client of ours) that he had doubled his money on one of the stocks that he had heard about from a buddy on the golf course.
What Andrew didn’t tell his brother John, was that the other nine out of ten stocks he purchased based on rumours were either at zero, close to zero, or coming in at a 100 per cent loss.
John only got the exciting version of the story—and to this day, he remains unaware that Andrew was actually down 80 per cent on his $100,000 portfolio, leaving him with only $20,000.
Fortunately, John decided to stick with our plan (despite the “hot stock tips” he was hearing), which saved him from taking a similar risk, and losing his money.
This is a very common case study, which illustrates how people will filter out certain details when they recount their stock market stories—especially when they’re ashamed of losing money hand over fist.
Next time you hear a “hot stock tip story” from a novice investor, try to remember that you may only be hearing one version—and its accuracy has most likely been sacrificed in order to leave out some pretty embarrassing details.
If you’re wondering what your investment story should sound like, reach out to one of our advisors today.
*Please note, while this case study is real, all names and investment amounts are fictitious to protect the privacy of our clients.
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