Even though I'm not married and have never been divorced, I read with interest about "Signs You're Heading for Divorce" recently at aol.com. Some of the signs, based on information in a book by Wendy Jaffe, apply rather well to investing and your personal finances. Let's go over a few examples.
- Marrying young (younger than 25 or 30, to be specific) increases your chances of divorce. As you get older, you get a better sense of what kind of person you're looking for and how to make a relationship work. Likewise in investing, you'll learn valuable lessons the longer you're in the game, such as how to best behave in a market slump and what strategies work best for you.
- Some divorces stem from spouses who think the grass is greener elsewhere. Infidelity is a marriage-wrecker, and it can wreck a portfolio, too. In investing, we can get burned by neglecting or dumping our main holdings to start looking around for the next hot stock. If you believe that Wal-Mart (NYSE: WMT), for example, is significantly undervalued and will offer good long-term returns, why would you sell just to chase after a much-riskier highflier?
- Second marriages are also at risk, often because people marry folks very much like their first spouse and thus repeat their mistakes. We can do that, too, with our stocks. Maybe you lost a bundle investing in General Motors (NYSE: GM) in 2007. But if you then moved much of your money into Ford (NYSE: F) stock, you may well end up with similar unattractive results, since both companies have struggled with faltering sales in recent years.
- Another derailer of wedded bliss is addiction. When it comes to investing, an addiction to gambling can do us in. Engaging in short-term trading and chasing after seemingly promising penny stocks are the things we might do if we're hooked on quick windfalls. When you're buying and selling shares of companies you don't really understand, and especially when you're doing so on a short-term basis, you're really speculating more than investing -- and that's gambling.
- Disillusionment and lack of commitment are other dangers. Over time, once the flush of early love wears off, spouses can grow disenchanted with each other, when they find that married life isn't turning out to be as idyllic as they had imagined it would be. Similarly with investing, if we're impatient and don't understand that it can sometimes take years for a great stock to reach its true value, or for the market to recover from a big slump, we can make mistakes.
- Finally, there's communication. When couples don't communicate, it becomes hard to arrive at necessary compromises, among other things. In investing, there are several kinds of valuable communications. As for the companies we own shares of, we should pay attention to communications from the company itself, by way of press releases and annual reports. Observe how candid your company's CEO is in his or her communications. Home Depot's (NYSE: HD) Frank Blake, for example, starts off his letter to shareholders in the 2007 annual report rather bluntly: "This past year was one of the most difficult our company has faced. Year-over-year retail sales declined by 2.1%, with comp sales down 6.7%." PepsiCo's (NYSE: PEP) Indra Nooyi includes not only a letter to shareholders in the 2007 annual report but also a section of shareholder questions and answers. We'd also do well to communicate with fellow investors. For example, we can share opinions on the Fool's discussion boards and in our CAPS community of investors who make stock and market calls.
Make sure you always keep the big picture in mind. Be mindful of your behaviors and attitudes, and you'll avoid heading for trouble -- in your portfolio and in your relationships with others.
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