By Nicholas Hamner
Investment Advisor Representative & Director of Marketing
[email protected]
With the Preakness this week and the Kentucky Derby still fresh in our minds, let’s talk about horses for a second. Did you know they made Mr. Ed talk by using peanu…
No, seriously.
A lot of phrases we use every day stem from horse racing. “Chomping at the bit”, often used to describe someone ready to go, stems from determined racehorses biting on their bit as they push their bodies and jockey for position. “Give and take”, the act of making negotiations fair by giving a little and getting a little, refers to the “give and take” weighted plates used on taller horses to make races more competitive. And if you’re “down to the wire”, you’re nearing the end of a competition with no clear winner, descended from the old horseracing technology of putting a wire at the finish line to visually determine the winner.
An obvious one is “backing the wrong horse”. We use that phrase, typically in hindsight, to admit we made the wrong decision. The phrase originates from the act of betting on a horse that then loses its race. It is the most excruciating phrase of them all, because we all know what it’s like to lose, it’s a terrible feeling, and we know it feels worse when we made the choice that led to the loss.
Sixteen(?) years ago, I was in Las Vegas on a work trip for my then-employer, a real estate company. We were there for a major convention and we had flown in Friday for the three-day convention that started the following Monday. That Saturday was the Belmont, and a horse named Big Brown was the big bet. He was the heavy favorite after he had dominated the Kentucky Derby and Preakness in the previous weeks, and everyone was sure he was going to be the first Triple Crown winner in 30 years. The off-track betting room at Caesar’s Palace was PACKED, and every screen was tuned to the Belmont. If you were in that room, you had money on Big Brown.
If you remember what happened, though, Big Brown did not take home the Triple Crown that day. In fact, he finished last, with his jockey easing him up once it was clear he wasn’t winning. And as the 1,000 or so people in the Caesar’s sportsbook watched him fall back and realized—in unison—that they had backed the wrong horse, the noise went from raucous jubilance to anguished silence in about 15 seconds’ time.
ABC’s Wide World of Sports would have called it the “agony of defeat” but it was more than that.
You can back the wrong horse in ways that have nothing to do with racing, and that are usually (thankfully) less agonizing. Ask the folks who bought Betamax instead of VHS recorders, HD-DVD instead of BluRay players, or VHS-C instead of MiniDV camcorders. Each one of them put their money behind an eventual marketplace loser. On the business side, the world is full of companies who backed bad ideas from outside influences—usually self-serving consultants (see: Enron) or VC board members looking out for themselves (see: Sears)—instead of their own business acumen and suffered severely as a result. And now, with so many companies incorporating AI, firing creatives, and making decisions based on an unproven technology that is increasingly producing poorer results, you have to wonder what the long-term impact of those decisions will be.
Are companies who have bet big on AI betting on the wrong horse or a dark horse? Am I beating a dead horse, sitting on a high horse, or thinking with my blinders on? Only time will tell.
Were there too many horse-racing analogies in that paragraph? Nay!
With investing, sometimes it can feel as if you’ve backed the wrong horse. You do your research, you make your decision, you place your trade and then… loss and anguish. Luckily, unlike a horse race or equipment purchase, your decision isn’t locked in and you’re allowed to change your mind. (Could you imagine if investing was like a horse race? Here’s your ticket for 200 shares of Tesla, let’s see where they finish… no givesies-backsies!) While it’s great to know you’re not locked into a long-term loser, you can still suffer significant losses if you get out the wrong way. Too many folks try to time the market, get out after suffering losses and only get back in once the gains are back. They might not be locked into a loser long-term, but they do lock in those losses.
This is the danger of emotional investing. Acting irrationally leads to irrational actions. Ever see this chart of emotions people experience during a market cycle? It’s basically the grief cycle with relief tacked on at the end. Good investment decision-making comes from practical, emotionless decisions that are made based on data. And that’s hard to do on your own.
We’ve had a rocky last couple of months in the markets. If the turmoil is getting to your emotions and you’re wondering what you should do, we’re here. Just give us a call at 215-657-9200 and get on the calendar. We’ll talk you through it and get you through it.
Enjoy the weekend, enjoy the Preakness!