My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned.

Monday, June 6, 2011

Investment Bravado, Little White Lies and Why Kiss and Tell Investing can get you shot

How many of us have heard cocktail bravado along these lines? “Boy did I make a killing buying gold” and “I bought my Mercedes with the profits I made on that tip”. Based upon these double martini induced boasts, Bill Gates & Warren Buffett should have multiple challengers for their positions as two of the world’s wealthiest men. But like the Mercedes in your neighbour’s driveway, that is in reality leased and like that phantom profit from the stock tip, cocktail investment bravado, is more often than not, in my opinion, false or exaggerated. 

Based upon 25 years of cocktail parties and my first year university psychology course, it is my observation that people lie or exaggerate about their stock investments to maintain or enhance their self-esteem and their perceived social financial status. Robert Feldman, a University of Massachusetts psychologist says "People lie because they need to present themselves as competent and worthy. Money is one key way people feel they are valued."

Exaggeration, tale-telling, even outright lying are merely tools to serve this ignoble enhancement of our own self importance. Even on the macro level, we like sensationalized financial news. Ever wonder why the markets wander a few points up or down when the media throws around adjectives like skyrocket or plummet? Keeping the market interesting justifies our interest in it and, by extension, validates our collective social financial activity and identity. Not only do we need to lie to feel good about ourselves, we would rather hear sketchy hyperbole from borderline sources than bad news from an honest one.

In addition to the various types of investment bravado noted above, it is also my experience that investors are also generally disinclined to admit their mistakes. Most investors seem to prefer smoke & mirrors, and martinis to black coffee and straight talk. An unsettling dishonesty attaches itself to this disinclination to admit error or respect those that do.

My persona on this blog is The Blunt Bean Counter. Believe it or not, some thought went into this moniker. I am blunt. I am also pretty open, much to my wife’s chagrin. So if I think I am on to a good stock, I don’t need to keep it to myself; if I get killed on a stock investment, I admit it. This “kiss and tell” philosophy on investing as it turns out, ended up being the conduit to a human psychology experiment in a national newspaper, so maybe in essence I am an amateur psychologist, even if not by intention.

You see, when Larry MacDonald asked if he could profile me for the Globe and Mail’s Me and My Money column, I knew I was going to do something somewhat controversial for the column. Me and My Money is presented in a somewhat standard format of first discussing your investment philosophy, then secondly informing the readers of some of your stock holdings and then thirdly informing the readers of your best and worst stock picks and finally you provide advice.  

I knew from the outset that I was going to have the same stock as my worst and best pick, a first for the Me and My Money column as far as I know. That stock is Resverlogix (“RVX”) and if you have not read my tale detailing my ownership of this stock, hit the link above. 

The Me and My Money Column was published on February 12th and for anyone who wishes to read the column, click this link.

I have no idea what the record is for comments on the Me and My Money column, but I am sure I am in the top ten. The comments started fast and furious.

Most centered on how I was greedy. I did not mind being called greedy, I was greedy in respect of the call options I held in RVX and I was cognizant of this greed and the risk I took because of his greed. An example of some of the comments I received was: “Three animals in the market. The Bull. The Bear. The Pig. This is an example of being a pig.”

However, after the initial avalanche of negative comments, suddenly there was a wave of support for the column starting with:

“Thanks for this, we've all been there (at least those of us that are honest) but apparently some here are deluded enough to believe it can never happen to them.”

“Hey, it takes a lot of guts to come on a national website and admit to one's bone-headed investment moves... Great investors like Peter Lynch aren't born... They learned through trial and error.” 

These comments reflect the essence of what I am getting at. Few people are totally honest about their investing trials and tribulations and even fewer admit them. I guess for many, money is a reflection of self worth and success and cocktail chatter allows them to espouse freely without address. For a selected few the bravado is warranted (although these people are typically not bragging in pubic), for some, they utilize selective disclosure (yes, they made a large profit on a certain stock or investment, they just have a slight memory lapse about the 3 other stocks they had significant losses on) and finally, for some, they are just trying to look good both to themselves and others, no matter if the tale is more fiction than fact.

As an observer of human investment behaviour, I find it fascinating that many need to accentuate or exaggerate the positive, yet, they are mute when their investments go sour.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

7 comments:

  1. Good posting.

    P.S. If I ever lose money on a stock, I'll let you know. :P

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  2. Skuj, you must be in the group I described in the second last paragraph as "For a selected few the bravado is warranted (although these people are typically not bragging in pubic)". I guess you fit in the bravado is warranted, but you do not appear to fit the not bragging in public part :)

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  3. I don't say a thing...but my GF can tell when i have a good or bad day trading.

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  4. Hey Anon--Based on the market this year, your GF must be climbing the walls :)

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  5. "Ever wonder why the markets wander a few points up or down when the media throws around adjectives like skyrocket or plummet?"

    The Canadian dollar, which tends to move with commodity prices and investor risk appetite, was getting slaughtered. It was recently down 1.5 cents (U.S.) against the U.S. dollar.

    http://www.theglobeandmail.com/globe-investor/markets/markets-blog/loonie-gets-slaughtered/article2061911/

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