A Bad Bear Stearns Trade Can Teach Investors a Lot
It doesn’t have to take a decade to learn some valuable lessons.
Bloomberg, January 6, 2020
What do you do when a trade goes awry?
That was the subtext of a Wall Street Journal column on Christmas Day, “Eleven Years in the Making: Breaking Even on JPMorgan’s Purchase of Bear Stearns.”
“It only took 4,209 days, but I am finally even!!!” So declared Stephen Bearce, now a broker at Wells Fargo. Why did Bearce buy stock in Bear Stearns? It was a speculation on the chance the investment bank would be taken over at a premium, making him a quick buck.
On a hunch there might be other more useful insights for investors, I reached out to some of the savviest traders and portfolio managers I know. Some of their takeaways:
Avoid Rationalizing Errors
Beware of the Sunk Cost Fallacy
Skip the Mental Accounting
Consider Opportunity Costs
Listen to What the Market Is Telling You
Always Have an Exit Strategy
Own Your Errors
What follows are the details of their suggestions . . .