It ain't so much the things that people don't know that makes trouble in this world, as it is the things that people know that ain't so. — Mark Twain.Recently, I was reminded of how difficult it can be to help people with their financial decisions. What they don’t know isn’t the problem so much as what they think they do know.
A young man I’ll call Lucas came to me wondering what to do with a modest sum in employee stock options. He’s not sure which way the stock market is going, and he’s not sure where his employer’s stock is going. Is now a good time to sell the options or not?
I started by explaining that nobody knows where the stock market or any individual stock is going, and that selling should be based on other considerations, like diversification and needing the money. I tried to continue with how his best course of action depended on the stock’s price and the strike price as well as the amount involved, but there was little point. As far as Lucas was concerned, I couldn’t help him and he’d have to ask someone else. No doubt Lucas will find someone else who will confidently make random predictions about the stock market.
There are things Lucas doesn’t know that made it difficult to help him. For example, he doesn’t know what a strike price is, so he couldn’t tell me how far into the money the options are. He told me a dollar amount for the options, but I’m not sure if that’s the value of the stock or the net value of the options. It’s even possible he doesn’t have options at all, but has some restricted stock.
The bigger barrier to helping Lucas is his mistaken belief that he needs help from some stock market prophet who can tell him the future. I’ve had the experience before of having someone nod in agreement that such prophets don’t exist, and then immediately ask another question searching for predictions of the future.
Even when someone knows very little about investing, it’s necessary to first get them to unlearn things they think they know but are wrong. Only then is it possible to help them.
I received the "Test" follow.it email, but this post didn't show up in my inbox. Not sure if this is just me?
ReplyDeleteAnonymous,
DeleteThanks for letting me know about this. You aren't the only one. It happened to my wife as well as hundreds of others. It turns out that there was a follow_it message at the top of the Test message asking readers to confirm their interest by clicking on a link. Those who haven't clicked on the confirm link (most readers) didn't get the second message.
Overall, I considered this move to follow_it to be a mess even before I found out about this problem. Follow_it puts idiotic ads and a disclaimer at the bottom of my emails, and they insert tracking crap before any links in my articles. I'm seriously considering abandoning email subscriptions entirely.
That's interesting, because I did click the confirm link. But anyway, if you're considering dropping the email thing altogether, I can get by with the RSS feed.
DeleteMaybe I don't know what caused the problem then.
DeleteSpeak of the devil.. the follow.it message just came in. I guess there's a bit of a delay on the messages.
DeleteThis is so true. The other one I often get/hear XXX stock has to go back to $100 because it was there before. To me explaining there are a number of factors that made the stock $100 in the first place and those factors have changed and no one can guarantee it will go back to that price.
ReplyDeleteHi Cameron,
DeleteThat one always seems like a desperate hope to me. People can't stand the thought of losing money on a stock. So far it's been true that the (worldwide) stock market as a whole always gets back to previous peaks after a fall, but there is no guarantee that any particular stock will.