In a recent post on MoneyVille.ca titled “I let an $11,500 stock profit get away“, The Star’s Peggy Mackenzie relates the story of how she invested $550 in what is today Gennum Corporation. Her initial investment has grown to $6,300 over close to three decades — a respectable rate of return — and that’s even before accounting for the modest dividend (the company has paid a quarterly dividend since 1994).
But Ms. Mackenzie isn’t happy with her returns. She regrets that she didn’t sell the stock in 1999 resulting in a “paper loss from the peak of nearly $11,500”. And she isn’t alone. One hears variations of it all the time. Recently, a friend complained that he has “lost” 10 percent since April and he should have sold because he knew that the troubles in Greece are bad news for the markets. And I’ve caught myself boasting about how much I’ve lost by not cashing in employee stock options in the late 1990s.
Investors should stop beating themselves up so much and realize that hindsight is playing tricks on their minds and what appears obvious today was only one of many potential outcomes in the past. For example, Ms. Mackenzie might have potentially sold Gennum far earlier than when it hit its peak and missed out on most of the gains she is currently sitting on. Or Gennum might have gone the way of Pets.com leaving Ms. Mackenzie with a much more regret. We only have one past but the future could unfold in any number of ways.
Are there other behavioural biases can you spot in Ms. Mackenzie’s post?
