Paul Meloan – Vested Interest

One of our firm’s clients is dumping his shares of Apple stock now that the price has fallen below $400 per share.

Of course, he was happy to buy the stock when it was $375, about an hour and a half ago it seemed.  He was thrilled when it passed $400, then $500.  He was probably walking six inches above the sidewalk when it passed $600.  I cannot imagine the smile when for that one glorious moment the stock crested $700, and the financial media proclaimed AAPL the first trillion dollar company in the making.

No one at our shop told him to buy Apple, and no one told him to sell it.  That’s just not how we roll. When you make an investment decision on an individual stock, you are saying you are smarter than the person selling it to you.  Conversely, when you sell an investment you are announcing you know better than the person buying it from you.  Assuming both parties are not under some outside compulsion to act, that’s how a market is made.  We learned a long time ago that it is really, really hard to be smarter than the rest of the world twice. In order to be a trader, that’s what you need to be.

As investment fails go, this one is pretty mild.  The only real cost here was an opportunity cost, and it is human nature to downplay opportunity costs more than absolute ones.  While this client owned Apple making its round-trip from $375 to $700 to $400, the rest of the market went up about 15%, so not a total disaster.  In terms of education, the tuition on this one was not that steep.

One of the rules of my profession is that ultimately clients are going to do what they are going to do.  It’s our job as professionals to educate them, and help them make informed choices.  To be completely fair, the client in this case only risked the tiniest part of his portfolio on this position, and the Apple win (or loss) would have made absolutely no impact on his real bottom line.  Sometimes you just have to scratch the itch.  I often remind myself that I have blown more money on dumber things.

If you are in the game just to be in the game, remember that every game has a winner and a loser.

Paul Meloan is the co-founder and co-managing member of Aegis Wealth Management, LLC, in Bethesda, Maryland USA. Before Aegis Paul was a practicing attorney as well as working in the tax practice of Ernst & Young, LLP.

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