Earlier this week, Payless Shoesource, a company that is just emerging from bankruptcy, with nothing to lose, pulled off a reverse of a bait-and-switch operation in an event held in Santa Monica, California. Payless took over a former Armani store, renamed the retail location as “Palessi,” and stocked the outlet with its discount-priced boots, heels, tennis and leisure shoes. Then, it invited a flock of customers and sold them the shoes, typically priced at $20-$40 in Payless stores, at inflated designer price tags of $200 to $600.
Shoppers walked in and bought shoes and boots at inflated prices and walked off after giving comments like “They are elegant and sophisticated”, “I could tell it’s made with high quality material” etc. Until, much like in the “Candid Camera” TV show, the shoppers were brought back into the store and Payless refunded the shoppers their purchase prices after revealing their creative experiment.
But, many consumers did not want to believe that they had been tricked and became accusatory. And therein lies the psychology and emotional aspect of, not only, what we purchase but also in what we invest.
Future Wealth’s View
One of the cardinal rules in investing is to not get tied emotionally with the investment – be it real estate, company stock or bonds. Most buy these instruments with little thought to valuation, fundamentals and analysis and just hope from reading or listening to the news or their coworker that their investment will somehow appreciate over time. And, in some cases it does and of course, that reinforces more investment into the same and so on. Then hubris sets in – if I can listen and read the news and make money, why do I need to even speak with a financial advisor, let alone pay for one.
This process works great until it doesn’t. And then, as in the shoppers in the fake Armani store, investors go into denial and wait for the price of their investment to come back up to at least the breakeven level, so that they can sell it, save face, and move on. Sometimes it does and sometimes it never does. Just ask those who bought Go Pro or Fitbit stock. Going back further, ask those who still have Cisco or Twitter stock from the height of the bubble in their portfolio. While most will gladly share how they bought Netflix at $50 and made a ton of money, few will share that they bought Facebook at $200 and are now seeing “red” everyday.
But, at the end of the day, investors need to be honest with themselves and that means removing their emotional baggage from impacting their retirement savings. The next 6-12 months is going to put the investors to the test and will separate the savvy investors from the “also-rans”. What camp do you want to be in?