Caroline Ritchie: How to handle a superstar

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For those dangling on my cycle-line wondering if I ever managed to win a race with my new bike - I did! The highlight of winter was coming first place at Ramblers, once, in F grade. It was fantastic and may or may not have caused me to sing loudly in the car on the way home, but all victories are fleeting.

It is what we do next that counts. It is how we act in between being temporarily sensational that forms our character and our success. Investing is no different, being something that we cannot disconnect from our personalities and our psyche. And the toughest trick of all in the sharemarket is how to handle a superstar.

Everyone thinks that they want this problem. Oh the misery of deciding exactly HOW MUCH money to extract from this golden baby! But you do not want to be in this position. Why? Because nobody, with rare exception, ever does the logical thing. If they do, they are an outlier, a wayward statistic.

When I was commuting down to Wellington for the bank, I saw something curious. There would be the usual portfolios, well diversified, cookie cutter. Benign, sage, does-what-it-says-on-the-tin stuff. Then there would be this other thing. This one stock. They hadn't mentioned it to the previous adviser, they would say, but they thought I might be interested because of my sharebroking background.

We keep it off-portfolio, they stated. In many cases, at that point, this wonder-child on its own dwarfed the ENTIRE value of the conservative mix. Often by 10 or 20 times and occasionally much more.

Wellington's quiet-as-a-mouse, numerous, "accidental" multi-millionaires. On paper. I would play my part, the ex-broker turned voice-of-reason portfolio manager, and swing the discussion around to what to do about this market tiger skewing their risk and causing sleepless nights because of the 40-fold profit made only in six years.

The talks were about safety, about realism, about history, about sanity. About cashing in. About comfort and security FOREVER for parents and children and grandchildren. About good schools, international property, philanthropy. And do you know what happened?

Not a single soul that I met would part company with the things, even a small parcel. Why? Because they had dipped their cups into an unnaturally rich vein of skyrocketing equity price and were firmly hooked, drug-like, to see how much more twinkly blue sky was up there. Then they followed it all the way down, as it shed 70 per cent of its value, not selling all the way, the possibility and dreams going with it.

Humans are wonderful, but we are so hopeless in the face of the modern world. We are programmed to do things which bring happiness and satisfaction. Back in my favourite time, the Stone Age, which is what we are wired for, that meant moving from the cold side of the cave to the fire to keep warm, getting something to eat to ease hunger and procuring a mate for other thrills.

Faced with instant (six years is pretty instant in shares in my view), and unexpected riches, these pleasure mechanisms go into orbit. But our brains have been fooled, as the win is not real, not yet. You have to cast off the magic cloak and dispose of the goodies to create that reality. Yet we do not. Arghhhh!

In good news - at least you know you are not merely a greedy little investing piggy - it is simply your genes. Blame them, they cannot answer back.


Caroline Ritchie is a former AFA, sharebroker and portfolio manager. She runs Investment Stuff, a sharemarket based investment coaching service. Visit her at www.investmentstuff.co.nz This column is not personalised financial advice.

- Hawkes Bay Today

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