The classic rock legends Nazareth said it best: "Love hurts... love scars, love wounds and marks any heart." In the world of wealth management, love doesn't just mark your heart -- it marks your brokerage statement in bright red ink. Emotional attachment is the silent killer of the well-crafted portfolio. Whether it's a sentimental connection to a deceased relative or a borderline-religious devotion to a celebrity CEO, "falling in love" with a ticker symbol is a Stupid Investment Trick that will likely make you poorer.
We see it every day. An investor refuses to sell a lagging position because they love the product -- the chocolates, the clothing, or the "tchotchkes" the company makes.
Take our hypothetical gamer who bought the Global X Video Games & Esports ETF (HERO) because they wanted to invest in "their people." Over the last five years, while the broader market was hitting record highs, "their people" handed them a 25% loss.
Then there is the "Legacy Trap." I recently spoke with an investor holding a mountain of AT&T shares because it was the only remaining connection to his grandmother. Since the turn of the century, that "connection" has seen its value erode by 34% -- and that's before accounting for the brutal inflation of the last few years. Grandma loved you; she wouldn't want you to go broke on her account.
Today, the risk of emotional attachment is higher than ever because we have entered the era of the Cult of Personality Stock. This trend started slowly with "legendary" figures like Jack Welch at GE or Steve Jobs at Apple. But today, it has hit a fever pitch. We see investors hanging onto Tesla because "Elon is a visionary," or clutching Palantir because Alex Karp is "shaking up the elites." They aren't buying a balance sheet; they're buying a fan club membership.
Passion at this level is blinding. What else could explain shareholders recently awarding Elon Musk a trillion-dollar pay package? Shareholders need to stop and ask: Is a trillion-dollar payout for one man actually good for the value of my retirement account? When you start cheering for a CEO like they're your favorite quarterback, you've stopped being an investor and started being a "stan."
A professional financial plan is created for two reasons:
- There is no "Goal" section in a financial plan titled "Preserve Grandma's Legacy" or "Signify My Love for NVIDIA." A well-crafted allocation specifies industries, geographies, and risk profiles. Emotional baggage "wreaks havoc" on that allocation because it ignores the cold, hard math of risk and return.
If your investment strategy is based on the "vibes" of a CEO or the memories of a loved one, you don't have a portfolio -- you have a scrapbook.