Don’t Chase
In investing it is tempting to chase. Chasing is placing an emotional attachment on an investment that is declining in some way.
A recent experience on Prosper reminded me of this principle. A loan for a borrower with C credit came up and I thought the borrowers profile indicated an improving credit situation and the rate was quite attractive. The rate kept going lower and lower. It finally crossed the point at which some of the solid B loans I participated in were closing. It was clear there was some chasing going on in this loan. I know this feeling. When I first came across the loan it was a great deal with a lot o promise. I have a feeling a lot of people saw that and kept chasing the opportunity long after it stopped being a good opportunity.
The same thing happens in the stock market. We discover a great stock. We invest and feel great, but then something goes wrong. It could be anything: A change in the market, bad management, a butterfly in Japan flapping its wings. The story is different. Our original thinking is no longer valid. Unfortunately the stock is from $70 to $50 and it is such a great deal. Don’t do it. If the story has changed for the worse move on.
You want to put your money in good stories, not continue to invest more and more money I bad stories. Don’t chase.