Fred has heard about an exciting new stock from one of his buddies at work. He calls his broker “My friend at work told me about the bicycles made from old candy wrappers that Snorgalon Corp is coming up with, buy me 200 shares right away!”. The broker cautions him that it’s a new, unproven technology and offers to send him a research report about the company. Fred is conflicted. He’s excited about the idea of making a fortune on the cool new bicycles, not so excited about finding out about all the reasons this might be a bad idea.
We work very hard for our money. We carefully research new cars before we buy them, get three or more estimates when we’re getting new carpet installed. But sometimes not only do we not want to hear the truth about a stock, we’ll actively avoid it. We don’t want to give up the fantasy. We don’t want to experience the doubt that comes when we find out this exciting company has been in business for five years and hasn’t made a dime.
Buying stocks is like any other financial decision. We make financial decisions from a position of knowledge, being able to recite backwards and forwards the pros and the cons for our commitments. Or it we don’t do it, we need to hire someone who will. We need the facts, not the dream, when we’re plunking down significant savings.