I remember cheering for Brazil during the 2002 FIFA World Cup, co-hosted by Japan and South Korea.
Every time Ronaldo scored, I’d leap up, shouting “GOALLLL!” with pure excitement. I was deeply invested in the team, jeering at the referees whenever a call went against Brazil. During close games, I’d be on the edge of my seat, my heart pounding in my chest.
Brazil ultimately clinched the World Cup, and at that moment, I wasn’t sure who was happier – me or the Brazilian team.
But here’s the truth, and I might receive some angry emails for admitting this: soccer isn’t my cup of tea. I don’t particularly enjoy watching or discussing it.
My dad, on the other hand, would bet on Brazil in every game. He’d flip open the newspaper, check the odds, read the commentaries, and exchange “notes” with the uncles at a nearby coffee shop.
I remember tagging along to one of these “due diligence” sessions one sweltering afternoon. It didn’t take long to notice a pattern: those who bet on Brazil sang their praises, while those who bet on England fiercely defended their chosen team. Neither side would budge, and these discussions occasionally escalated into heated arguments, especially if they’ve consumed alcohol.
Sometimes, I wondered if they’d forgotten they were Singaporeans and that the teams they were passionately debating over weren’t representing them at all. But it seems that once you place a bet and declare it publicly, your identity becomes intertwined with it.
Whenever Brazil won, the following days were filled with joy. My dad would treat the family to a meal, and his mood was noticeably brighter. Naturally, I also found myself getting annoyed whenever anyone criticized the Brazilian team. The game’s outcome affected my day, and I, too, had skin in the game.
I see this emotional attachment all too often in investing. Once people invest in a company, logic often flies out the window, and their identity becomes wrapped around the stock. They forget Buffett’s timeless wisdom: “The stock doesn’t know you own it.”
Last week, we discussed six scenarios in which doubling down on a losing investment is unwise. Emotional attachment to a stock is a major culprit. Many people lose significant amounts of money by defending a losing stock rather than objectively reassessing its potential.
Take Peloton as an example. Many investors believed that a bicycle with an iPad would revolutionize home fitness. Despite the long odds, their optimism was understandable. The company charged a premium for its product, yet demand outstripped supply, and growth skyrocketed.
However, when the tide turned, cracks emerged. Demand plummeted as the pandemic eased, home workouts lost their appeal, and the company faced liquidity issues.
Yet, many investors refused to see the writing on the wall and kept doubling down as Peloton’s market cap melted away.
Today, Peloton’s stock is down a staggering 97% from its peak.
This isn’t a critique of Peloton investors but a reminder of how susceptible we are to behavioral biases that cloud our judgment. While we can’t completely eliminate our biases, recognizing their triggers can help us take steps to minimize their impact.
Resist the urge to tie your self-worth to a stock’s performance. Avoid the temptation to defend it at all costs or boast about its potential to friends and colleagues.
Because just like those passionate debates in the coffee shop, the more you talk about your stock, the more emotionally attached you become. And when that happens, it’s easy to overlook warning signs, leaving you vulnerable to the unrequited love of a stock that isn’t as loyal as you’d hoped.
So, if you find yourself overly attached to a stock, take a step back. Revisit the fundamentals and remember: it’s an investment, not a reflection of your identity.