Have you ever felt an overpowering desire to possess something or someone at any cost, without any regard for morals or ethics? An obsession bordering on irrationality? An unsatiated hunger that burns to the very core of your being? If you have, then you have experienced Lust.
What has Lust to do with Investing? Indeed, it appears that Lust is more synonymous with a desire for beautiful women, rather than towards shares. Yet, we can easily develop Lust towards any desirable object. Lust can lead towards our downfall in many ways, even in the world of investing. Let us explore how this may occur:
1. Sexy, Sultry and Sensual Shares
What company could be sexier than Enron in the last decade? As one of the world's leading electricity, natural gas, pulp and paper, and communications companies, with claimed revenues of USD111 billion in 2000. Fortune named Enron "America's Most Innovative Company" for six consecutive years. In August 2001, Enron's stock price hit its highest value of USD90. If you had bought into the hype without understanding how their business operated, let’s just say that it might be an investment decision you would have never recovered from.
2. Putting all your eggs in one basket
Lust can blind you to the extent you are willing to sacrifice everything to obtain the object of your desire. There are many reasons why you would lust after a company:
(a) Celebrities CEOs such as Larry Ellison, Richard Branson or Steve Jobs;
(b) Booming sector like the Internet during the late 1990s;
(c) Love for product such as the Sony Walkman or Apple iPod;
(d) Shares in your own company; or
(e) Believing in the hype by stock analysts and the market.
It is at times like these that you may blindly pour all your love and life savings into companies like Lehman Brothers. And this is what might happen:
Earlier, I posted a simple quiz to test a person's vulnerability to the Seven Deadly Sins of Investing. Let's start by reviewing the first question.
1. To Buy A Car
Oil prices have just gone up and your wallet has taken a huge dent. Your rickety old car is good enough for your needs even though you need to spend money servicing it frequently.
One fine day, you hop over to a car dealer just to admire the car. Immediately a car sales person pounces on you and brings you to look at a shiny brand new Toyota Altis. It appears to be reasonably price and looks gorgeous. Besides, you would be saving on repair costs on your old car. No harm rewarding yourself after working so hard, right? Further, your year end bonus is coming up soon.
This question tests your abilities to withstand the temptations of Lust. In the above scenario, you would be better off avoiding purchasing a new car. Even if you have the money to buy the car on a cash term basis, why bother?
An Intelligent Investor would consider investing in assets such as houses or shares. With prices being currently depressed, it might be wise to conserve cash and start looking at good investment opportunities.
TRUST BUT VERIFY
LUST BUT DIVERSIFY
When investing, it might be wise to consider diversification to avoid the dangers of Lust in investing. Even though you believe beyond reasonable doubt, that the stock you lust after, is a sure thing: DON’T put all your eggs in one basket. Who would have thought that companies like AIG, Merill Lynch, Lehman Brothers and Bear Stearns would face bankruptcy? Remember, there are NO SURE THINGS in the life.