Wednesday, September 1, 1999
The Bully Theory
I've been an investor since Amazon.com launched its IPO; a respectable time, but not enough to accumulate vats of stock-related wisdom. Over the past few years, however, I've observed one thing for certain: The Bully Theory.
Owning a stock with a falling price is a lot like being bullied in the school yard. Day in and day out, the Bully taunts you: "Ha, ha, Skeeter wears green underwear!" and, boom, the price of your favorite stock falls 3 points. "Skeeter salami-head!" and, wham, you lose another 4. Or, one day, the Bully screams out a plain-old "You SUCK!" and your stock plummets so far you can't stand even to look at the screen anymore.
Just like coping with a bully, there are things you can do to cope with a sagging stock.
- Check your fly. Are you being bullied for a reason? Take a hard look at the company you own stock in. How are its finances? Is it competitive with other similar companies? Are there any frightening lawsuits against it? If everything looks good, you can be reasonably sure that your fly is zipped; there's no immediate reason to sell. Chances are, the problem is the Bully, not your company.
- Check the school yard. Are the other kids getting bullied also? If fifty other stocks are falling on the same day as yours, chances are high that the bullying isn't personal. When the Bully gets tired, your stock will recover -- along with the rest of them.
Now, assuming your fly is zipped and you're not the only kid getting teased, do what your parents told you to do: ignore the bully. Eventually, he will get bored and go away. Of course, just like when you were a kid, this can be nearly impossible to achieve. The Bully could torment you for days, weeks, or months without a break. Every time you browse the Internet, you'll probably see a stock price or news story that reminds you of the Bully. Even in the supermarket, magazine covers might have frightening pictures and headlines that scream out to "Beware of the Bully! Sell, sell, sell!"
Ignore it. Periodically do the fly check and the school yard check, and otherwise, ignore it. Don't watch the Bully drop your stock prices hour-by-hour. Don't get drawn into gloomy conversations about the future of the stock market. Clench your fists and ignore the bully. Your parents were right. Ignore it long enough, and you can be sure that it will, eventually, get bored and go away, making the school yard fun once again.
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