MarketPsych Presents: Market Beer Goggles, Part I

College, 1992: A Flashback

It happened late at night. It always happens late at night. The keg was kicked and the host was reduced to breaking out a bottle of Peach Schnapps that had been in the back of the liquor cabinet since the Nixon Administration. What. A. Party. You danced a little. Drank a lot. And you spent the last hour on the couch canoodling with this really hot girl (or guy as the case may be). You asked your model-esque romantic interest if he/she wanted to find some place a little more private...

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Yep. It was a pretty cool night. That was until you got the party photos back. Looking at them now, you see that something is strangely, terribly amiss.

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"That's definitely me on the couch", you think, "I have the matching Guinness stain on my Polo shirt to prove it. But who in the name of Extreme Makeovers is that decidely un-hot person sitting next to me?!" And, follow up question, "What did I do? (gulp) Please tell me it's not what I think it is!"

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Beer Goggles: noun, A metaphorical set of "eye-glasses" worn after excessive alcohol consumption that makes otherwise unattractive individuals extremely desirable.

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Back in college, it was known as Beer Goggling. And for most of us college is where it stayed. We all get older, and generally that means wiser. We learn to make better choices, to channel our impulses. As we mature our lifestyles change, we settle down. But while we don't break out "The Goggles" at parties anymore, we sometimes break them out in "The Market".

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How does it happen? What is this intoxicating mixture that distorts our judgment, lowers our standards, and causes us to hook up a dreadful, "oh-my-gosh-I-did-what" stock. It's a pretty simple recipe:

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Market Love Potion #9

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Mix:

2 Parts Media Hype

2 Parts Greed

2 Parts Impulse Control

1 Part Peer Pressure

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Shake well. Serve over crushed ice. Garnish with lemon peel.

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Welcome to MarketPsych's new semi-regular feature, Beer Goggle Stocks! Where we use hindsight, and the harsh, wince-inducing light of day to illuminate those times we became intoxicated by a stock or sector and made a regrettable choice that could have been avoided if only we were thinking clearly.

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We will highlight a number of these investments. Analysis will include a "before" and "after" picture, a break down of the emotional/cognitive/social factors that led to misjudgment and an outline for how to avoid such mistakes in the future.

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Like the old T-shirt, "Friends Don't Let Friends Beer Goggle".

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And at MarketPsych we like to think of ourself as your investing friend. The responsible one who takes your car keys, orders you a cup of black coffee and walks you around the block when you're not thinking straight. So if you've ever hooked up with a hot stock only to later to see it was a dog... stayed tuned for part II.
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Coming Soon: Market Beer Goggle Part II - Ethanol, I Promise I'll Love You in the Morning.

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In the meantime, happy investing.

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-Dr. Frank Murtha

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MarketPsych is the premier Investing Psychology Consulting Firm. We have been doing talks, keynotes, workshops, training, coaching, consulting in Investing Psychology since 2002. Our clients include individuals and institutions in all areas of the financial community. Contact us at [email protected] for more information on how we can help you.