An Unlikely Scenario

An Unlikely Scenario

A sample from the upcoming book…

Imagine living in a house or condominium that you own—either outright or with the help of a mortgage. Despite its imperfections, it is home. It satisfies many basic needs and, in all probability, will appreciate in value over time.

Now imagine a stranger coming to your door, offering you money for the house or condo right now. If his price is ridiculously low, you will probably close the door—and perhaps call the police (or suggest counseling). If it is ridiculously high, you might accept it as a windfall—if he is not actually mad. But if the price is anywhere in between, you will almost certainly just say no. You were not considering selling and are satisfied with your home and the likelihood of its increased value in the future. It has value worth more to you than any price he is likely to offer. Price is wholly irrelevant, and you would consider anyone offering to buy suspicious.

Now, relate that unlikely scenario to investments. If a stock or fund has value in the long term, and you have no immediate need to sell it, then almost no price will be acceptable. However, with investments is there is a “stranger at the door” quoting a different price every day. Whether it’s a mobile investment app, a too-frequent portfolio review, or a cocktail party conversation, the price message is persistent, and almost always unrelated to a portfolio’s long-term value.

The secret is to treat the “stranger at the door” with the same suspicion when it comes to the price of stocks as you would with an uninvited offer to buy your house. The stranger may not be deranged, but his message is almost always moot. If you have no immediate need to sell something of value, then almost no price is worthwhile.