We human beings tend to assume, perhaps too hopefully, that what's going well for us now will remain just as happy and trouble-free for a long time to come. (Witness the teenaged clerk at my local fast-food establishment, who got her neck adorned with a large tattoo of her current boyfriend's name.) But in investing as in life, this sort of optimism isn't always the wisest strategy.
Things change
We may buy a stock with the assumption that we'll hang on to it for 20 years, then rarely check up on it. Unfortunately for us, things change. If you invested in a company that made typewriters 20 years ago, you're probably kicking yourself now.
Not long ago, these companies basked in investors' love. Now they're mostly breaking hearts:
|
Company |
Recent annualized losses |
|---|---|
|
Crocs |
48% over past three years |
|
Starbucks |
33% over past three years |
|
Whole Foods |
35% over past three years |
|
Krispy Kreme |
41% over past five years |
|
New York Times |
32% over past five years |
|
General Motors |
28% over past 10 years |
|
Eastman Kodak |
23% over past 10 years |
Data: Yahoo! Finance.
Some of these companies were fads that captured our imagination. Others offer products or services we're passionate about, such as newspapers, coffee, and automobiles. But passion alone isn't a solid foundation for a sound investment. You also need to seek out competitive strengths, financial health, robust growth, compelling promise, and attractive prices.
If you'd gotten out of these companies in time, you could have saved a lot of money. Alas, many people assumed these stocks deserved a permanent place in their portfolios -- and suffered the consequences.
So make sure you invest with your head and your heart. Look for undervalued stocks, which are around in abundance right now. And make sure your investments really are worth holding for the long haul, before you go ahead and tattoo their ticker symbols anywhere prominent and/or painful.
