Why Past Performance Indicates Your Future Investing Actions
“You can go home with a lot of money with absolutely no skill.”
If you’ve ever been to Vegas, you’ve probably seen the poor guy (or, maybe, deep down inside, you admit this is you) who has lost a bunch of money trying to win it all back. “If I just break even, I’ll walk away,” he says. His wallet cringes. Visa stock prices go up as the anticipated profit of this guy paying off his debt gooses their bottom line.
Why can’t he just quit while he’s behind? It’s called loss aversion, and because of it, you’re much more likely to try to chase losses and get back to break even.
You’ve probably also seen the guy at the table who had the hot hand. He had a stack of chips in front of him, the table is loud, and cocktail waitresses circle like pigeons surrounding the person in the park who is throwing bread crumbs. As he grabs the dice, he bellows “I’m playing with house money! Let it ride!”
At that point in time, he’s a winner, but isn’t he exhibiting the same risky behaviors as the poor schmuck two tables over who’s crying into his $500 cocktail? Yes. Because he views himself as playing with house money, he’s more likely to take risks. Another phenomenon of this winner is that even as the casino gods exert their inexorable force on him and he comes down off the winning streak, he still thinks of himself as hot. It may take several losing throws, a dwindling stack, and the loss of attention of the cocktail waitresses before he comes to realize that his ride is over. It’s because the human mind takes several iterations of losing or winning to adjust to a new reality.
What about the person who has the typical casino experience of lose a little, win a little, lather, rinse, repeat, and go home down a few dollars?
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Jason Hull is a Fort Worth fee only, hourly financial planner who serves clients in Fort Worth, TX and Dallas, TX as well as serving clients nationwide.
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Hull Financial Planning is a Fort Worth, fee-only hourly financial advisor. The cities we serve in the Dallas-Fort Worth area include:
Arlington, Azle, Bedford, Benbrook, Blue Mound, Burleson, Colleyville, Crowley, Dalworthington Gardens, Edgecliff Village, Euless, Everman, Flower Mound, Forest Hill, Fort Worth, Grapevine, Grand Prairie, Haltom City, Haslet, Hurst, Keller, Kennedale, Lake Worth, Lakeside, Mansfield, Newark, North Richland Hills, Pantego, Pelican Bay, Rendon, Richland Hills, River Oaks, Saginaw, Sansom Park, Southlake, Trophy Club, Watauga, Westlake, Westover Hills, Westworth Village, and, White Settlement
Addison, Balch Springs, Cedar Hill, Carrollton, Cockrell Hill, Combine, Coppell, Dallas, DeSoto, Duncanville, Farmers Branch, Ferris, Garland, Glenn Heights, Grand Prairie, Grapevine, Highland Park, Hutchins, Irving, Lancaster, Lewisville, Mesquite, Ovilla, Richardson, Rowlett, Sachse, Sand Branch, Seagoville, Sunnyvale, University Park, Wilmer, and, Wylie
We also serve clients nationwide and can leverage technology to maintain our client contact and communication.
Hull Financial Planning, 2939 Crockett St. #315, Fort Worth TX 76107, (817)476-0584