There are a few go-to casual conversational starters in my world…
How are the kids? How have you been? Nice weather we’re having. How about those Eagles?
These can lead to hours of great conversations, but there’s also one other question I get that sometimes makes me cringe…
“So, what stock do you like?”
It seems fairly innocuous, and seeing that my entire career has been based on trading them, it’s fair game. Plus, I can also talk you blue in the face about the market as well. This is no complaint, it just leads me to a story.
I spent the better half of the last decade traveling from soccer field to soccer field. I was the stereotypical “soccer mom” and loved every minute of it. When I wasn’t yelling at a referee or cheering on my daughter, I had a lot of down time to chat with the other parents. I miss these moments almost as much as I miss watching my now retired daughter ripping one into the back of the net.
However, there’s one conversation that still gives me great pause. It was an innocent discussion amongst some of the dads. As we talked, two others dads circled around to listen in on our chat. We were talking about the recent market rally and what stocks we liked.
I mentioned that I had recently bought a data center stock. It was in the low 40’s and I thought it could continue its run into the 50’s. Things I didn’t mention—What was my timeframe? What was my downside risk? What could change my mind on this investment?
Why would I have to mention these things? It was friendly banter - what could go wrong?
In my case, the trade worked okay. I held it about 6 weeks and got out with a 10% gain. (Remember way back in 2017 when it took weeks to make 10%, not minutes.) It wasn’t a sexy trade and I moved onto something else. In fact, I had totally forgotten about it. That was until I bumped into one of the dads from that pow-wow on the soccer sidelines months later.
“What happened to that stock?” he asked. I honestly had no clue what he was talking about.
“Which one?” I was a bit perplexed. I didn't recall giving out any advice.
'“The data center stock. It’s trading in the low 30’s. What should I do?”
I felt awful. He was part of a conversation I had six months ago and bought the stock I had mentioned. He never sold. I felt guilty, but why?
I never said, “you need to get into this stock”, but he had. Now he wanted my thoughts. Ugh!
He asked me what he should do. It was awkward, but I told him I was out of the trade and hadn’t revisited it. By the look on his face, it was not really the answer he wanted to hear. I then told him that the sector is a good long term play and things should be fine over time. Maybe it was wishful thinking on my part, or maybe I was just trying to keep things upbeat. Either way, it was uncomfortable and I felt responsible in some way.
I say it time and time again, if you are going to get into a stock, know what you are getting yourself into and why. Not only that, but more importantly, know your goal and time parameter, and most importantly know your downside risk. Listening to someone whose opinion you respect, or hope has a hot tip, is one thing, but jumping in without any form of an exit plan is downright foolish.
As a result of that encounter, I always try to reiterate time frame and risk in all my stock conversations. In the rare case I do make a stock pick in a public forum, I lay it all out as best I can.
As for my soccer dad friend, our paths haven’t crossed since. I have no idea what he did with his position. If he held it for the long term then he should be ok. The stock never traded much lower than that day. In fact, it rallied to just over $70 this summer and closed near $60 today.
Not a bad return over the longer term - if that was his time frame.