Finger poised over the sell button. Price ticker fluctuating, more erratic than a tweaker at a rave. Emotions in conflict. Butterflies in stomach. A trickle of sweat running down the protagonist’s brow.
Finger slams the sell button. Locking in the profits. Saving the day.
Cue the triumphant music. Celebratory high fives. Self-congratulatory back slapping. The conquering hero heads for the exit, surrounded by a token love interest and gang of trusty sidekicks.
Titles roll. Lights come up. The movie ends.
Over the years Hollywood has produced some entertaining dramatisations of high finance.
Wall Street. Margin Call. The Big Short. Boiler Room. Secret Of My Success. Wolf of Wall Street.
Each one telling the tale of an ambitious master of the universe’s rise, fall, and (sometimes) rise again.
TV shows like Billions, Devils, and Succession portray mildly exaggerated versions of the vast egos, absent ethics, dastardly deeds, and sheer luck involved in generating true alpha. Not performing the same backwards-looking financial analysis or faith-based technical analysis that amateur active investors undertake while trying to talk themselves into or out of a random investment position.
True alpha can’t be found in consuming the narrative, it comes from creating the narrative.
If you aren’t moving markets then you are a spectator, not a player. Speculating on what you hope may happen rather than investing in what you know will happen. Your returns nothing more than a financial participation trophy.
While entertaining, reality is often a pale imitation of the adrenalin-fuelled skullduggery depicted on screen. The movies never mention all the real-world friction, delays, and human incompetence we endure.
Transaction fees. Some visible. Many hidden, such as unfavourable foreign exchange rates, buy-sell spreads, trailing commissions, and front running.
Taxes. When you make it. When you spend it. When you buy it. While you hold it. When you sell it.
Settlement periods and transfer windows measured in days for electronic transactions that take nanoseconds to complete. Systems inefficient by design. Traditions and compliance theatre masking that at their hearts those systems are built to enrich incumbents while dissuading interlopers.
Wealth carefully managed out of the client’s wallet and into the service provider’s pocket.
Our lived experience differs markedly from those cinematic portrayals. Hitting the sell button doesn’t produce fanfare or ticker-tape parades, but rather bland underwhelming on-screen acknowledgements. Perhaps followed by an emailed contract note.
The feeling isn’t nerve-wracking. No sweat on the brow or butterflies in the stomach. Merely “meh”.
Of course, for some of us, externalities may influence that feeling.
Social media “Chicken Littles” perpetuating self-reinforcing feedback loops that “the sky is falling”, or the euphoric hopes of a legion of Pollyanna’s promising that returns are heading “to the moon”. High on volume and low on fact, little more than noise.
Financial commentators and talking heads chase clicks by running outrageous headlines and trying to incite mania or panic amongst the unthinking herd. The greater the drama, the larger the audience.
Active investors live by the sword and die by the sword. Take a punt and double their money in a week. Embrace a HODL philosophy and see that same investment cut in half over a year.
Who is an investing genius?
Who is a greater fool?
Or is it mostly randomness and dumb luck? The older I get, the more I suspect this to be the case.
Another major influence is our perception of relative performance. Where do we anchor our valuation to? What do we measure our performance against? Both determine how we feel about the outcome.
Sold up 2% on yesterday’s close. A win.
Sold down 5% on the previous monthly portfolio update. A loss.
Sold down 15% on a year to date perspective. A big loss.
Sold at parity with where prices were six months ago. A draw.
Sold up 85% on the original purchase price. A big win, made smaller once the taxman takes his cut.
Each narrative accomplished by selling the same stock at same price. Yet each creates a vastly different perspective.
Sometimes, focussing on what we wish to do with the proceeds can dispel some of those conflicted emotions.
Was the sale part of a pre-existing plan? A periodic rebalancing? A scheduled drawdown?
Perhaps the sale was to finance the realisation of a life goal, our own or that of someone close to us. Our investments delivering warm fuzzy feelings or coping with those cold hard “life happens” realities.
Buying a house.
Paying for medical treatment.
Getting married. Getting divorced. Having children. Operating the bank of Mum and Dad.
For as long as I can remember I have been enthusiastic when it comes to investing new money. Yet hesitant to sell investments. I hadn’t made the schoolboy error of falling in love with a property, or becoming sentimental about a stock that had enjoyed strong past performance. My investing had always been based on the numbers.
No, what troubled me was the idea of killing off a goose that laid golden eggs. Sacrificing a long term income stream to service an immediate and typically short-lived want.
Younger me used to hide behind naïve concepts such as natural yield, convincing myself that living off the natural cash flows generated by investments was fine, but consuming capital was not.
Which, when you stop and think about it, is a logical fallacy. Facepalm worthy mental accounting.
The only real difference between dividend payments and share buybacks is the tax treatment each incurs. The only difference between a share buyback and a sale is which party decides the timing.
Each outcomes entails the investor having capital returned. Regardless of whether the company decided to offer a 2% dividend yield, or I manufactured one via selling off an equivalent number of shares, the gross purchasing power of my return is the same.
Over the years, I grudgingly learned to embrace total return as the metric that mattered.
Investment A may offer a total return of 5%, funded entirely through capital growth.
Meanwhile, investment B might generate a 5% total return from rental income or interest.
Neither is inherently better or worse than the other, though tax policy often influences our behaviours to favour some forms of investment income over others.
Yet despite intellectually recognising the logic of these arguments, hitting sell still leaves me with a hollow feeling.
Not so much when rebalancing or adjusting asset class allocations. Rather it is when I convert an investment, in the productive use of capital sense of the term, into that non-productive store of deferred spending that many folks call savings.
My inner saboteur will chimp away with helpful observations like the following. All of them true.
“If not now, then when?”
“Live a little, you only live once”.
“The winner is not the richest corpse in the graveyard”.
Annoyingly, he is right. I hate it when that happens!
And yet the hollow feeling remains. Another thing the Hollywood protagonist never experiences. Just shut up and sell!