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Cutting Investment Losses and Lovie Smith

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English: LOVIE SMITH, of the Chicago Bears, in...

Lovie Smith is the Head Coach of the Chicago Bears.  A column in the Chicago Tribune this past weekend suggested that Smith might be on his way out at season’s end.  Smith makes a bit north of $5 million per year and his contract runs through the 2013 season.

Smith has had some success with the Bears, leading them to the Super Bowl after the 2006 season and to the NFC championship game after the 2010 season (where they lost to my Green Bay Packers).  Last year the Bears started 7-3 but faded and missed the playoffs.  This year they started 7-1 but currently stand at 8-5 with a key game against the Packers this weekend.  Looks like another potential meltdown for the underachievers.  In fact Smith has missed the post season 4 of the past 5 seasons.

The investment decision process

Investors are faced with the decision about where to best deploy their investment dollars on a regular basis.  Sometimes this decision involves taking a loss on an investment and moving on.  Maybe this involves a once high-flying mutual fund or perhaps a stock that looked promising.   When trying to guide a client through this decision process, the first and main question that I ask is “… would you buy this investment today?”  Often it’s tough for investors to admit that they made a choice that didn’t pan out.  However I would offer that the ability to take a loss when warranted and move on is a trait of successful investors.

The same process is also undertaken (or should be) by companies.  Has our investment in a new business line or in the acquisition of that competitor paid off for us?  More so what are the future prospects?  Is this still a good use of our capital and in the best interests of our shareholders?

In the case of the Bears, if they fire Smith they are assured of having to pay his salary for 2013 plus that of any assistant coaches who might be under contract if they are let go by a new coach.  The decision should be about whether Smith is the right person to lead the team into the future.  Pro Football is a business; the Bears are the 8th most valuable NFL franchise according to Forbes.  In spite of a lack of success on the field (their last two championships were in 1985 and 1963) they have a loyal fan base and play in the NFL’s second largest market.  Will a continued decline in the team’s performance hurt the value of business?  Some teams have seen immediate success from a new coach; take the San Francisco 49ers last year.  On the other hand there are no guarantees.

Love your family not your investments

I have encountered a number of folks who have a sentimental attachment to a particular investment. This might be due to having held it for a long-time or perhaps due to having inherited it from their parents.  This has no place in investing.  I’m not advocating trading for its own sake, or selling an investment on temporary weakness.  Rather you need to consistently review your holdings and your overall portfolio.  If changes are needed then make them.  In some cases this might involve taking a loss, admitting you made a poor investment decision, and deploying your money elsewhere.  This needs to be done within some sort of plan or framework such as an Investment Policy Statement.

In the case of the Bears, this transplanted Packer fan hopes the Bears not only keep him around for 2013, but that he is around for years to come.  I suspect many Bear fans are hoping the team eats his 2013 salary and makes a better coaching investment.

Please feel free to contact me for a review of your investment portfolio.

Photo credit:  Wikipedia

 

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Comments

  1. Good post Roger, I could not agree more! I always hate to see people hold on to outright dogs because they have an emotional attachment to said stock/fund. I , know that taking that loss can hurt, I’ve done it too many times myself, but having that clarity of mind is vital to being a successful investor.

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