What Ted Lasso Knew About Investing
It was only a matter of time before I would find a way to work the beloved Ted Lasso into this blog.
Fans will recall his advice to both his son and Danny Rojas that the best players are like goldfish because they have no ability to remember the past. The memory of missed goals does not haunt; all eyes are on the future. (I so dearly wish this for the US Women’s National Team.)
And so it is with investing. You own an investment, and it has increased in value quite a bit, 25% let’s say. Do you keep it? Or do you take your winnings? Here’s the thing: the fact that it has sky-rocketed by 25% is not relevant to the decision. The only thing that matters is what happens next.
To be clear, I am over-simplifying just a bit. With the evergreen disclaimer that past performance is not an indicator of future returns, what happened yesterday can sometimes inform what will happen tomorrow. The critical question is, “Why?” The mere fact that the price has risen is, in and of itself, not helpful information. What is the story that you can tell about why this investment was successful? Why do you think this same confluence of events that occurred in the past will persist going forward? Forget the stock price; what are the facts that you know about the company and its prospects?
It is often said that the question to ask when deciding whether to sell an investment is to ask, “If I did not already own it, would I buy it today?” If the answer is “No," that is a telltale sign that it is time to let it go.
Of course, this discussion is entirely academic if you are like me. In my world, the only time to sell — or buy — is when your goals and/or timeline change.
If you are approaching retirement and find yourself uncomfortable with your overly aggressive investment stance, that is a reason to rebalance. (But if you hold the unsung hero of investing in your retirement portfolio — a target date fund — you won’t have this issue!)
If you find yourself with extra cash and no near-term plans for its use, that could be a reason to invest (i.e., to buy).
Are you madly shoveling cash this summer into an online savings account or CD to take advantage of those tasty yields? That’s fine if you have a large expense on the horizon or a depleted emergency fund. It’s not so fine if, in doing so, your portfolio allocation is no longer a match for your overall long-term financial objectives.
The reasons to make an investing move are not driven by the level of the S&P 500. Whatever view I may hold of the near future of the stock and bond markets (in fact, I have none) is entirely unrelated to any decision that I will make about changes in my investment portfolio.
(Hey, I’d love to be in touch regularly. My free newsletter contains this blog, as well as other articles written by myself and others. Please consider subscribing by visiting the MoneyByLisa home page.)