“Thar she blows!” “Where away?” “Three points off the lee bow, sir.” “Raise up your wheel. Steady!”

Illustration: I.W. Taber. Source: Wikipedia

It’s easy to become obsessed. Melville’s famous novel Moby-Dick describes Captain Ahab’s obsession with a giant albino sperm whale. On a previous voyage, the white whale had bitten off Ahab’s leg, leaving him with a prosthesis. Ahab goes on a mission of revenge, casting his spell over the rest of the crew. His fanaticism robs him of all caution. In the end, Moby-Dick destroys the ship and drags Ahab to the bottom.

When you’ve suffered a loss in the market, the best thing to do is to put it behind you. Sometimes it’s because the nature of the economy has changed. Sometimes there was an unexpected development—new management, or some external factor. Sometimes you simply miscalculated. Whatever the reason, it’s important to understand that markets are forward-looking. They take current circumstances and future expectations and try to discount all the expected cash-flows to a present value. That’s what market prices represent.

S&P 500 for the last 2 years. Source: Bloomberg

So when they move significantly, it’s because the outlook is different. A stock doesn’t know that you own it, and it certainly doesn’t care what the price was when you bought it. Investors can get obsessed with “getting out even.” But that’s a mistake. The only reason to worry about where you bought a stock is to manage your tax-liability.

In the midst of the conflict, Ahab was given a final chance to give up his fanatical quest, but he rejects this—to his doom. Investors need to be sure they’re thinking and planning rationally—and not obsessively.

Douglas R. Tengdin, CFA

Chief Investment Officer

[tags Moby-Dick, obsession, cost-basis
By | 2017-07-17T12:22:09+00:00 February 3rd, 2016|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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