In the classic 1987 movie, “Wall Street,” starring Michael Douglas, his character, Gordon Gekko, tells his listeners in a now-famous speech: “Greed is good.”
Gordon Gekko lied to you. Greed is NOT good. If you need or want proof, just ask the vast numbers of people who bought homes they couldn’t afford because greedy loan officers promised them the moon and delivered cheese instead.
Our entire real estate economy has collapsed on the basis of the greed of both homeowners and home lenders. The homeowners are losing their homes, going into foreclosure, and often declaring bankruptcy. The mortgage lenders are going out of business and turning innocent employees who had nothing to do with the greedy aspect of the business out to search for new jobs. It’s a mess … and it can all be laid back on the footsteps of greed.
We are all guilty of greed to some extent, if we were to be honest with ourselves. I have noticed children — my own and other people’s — do not need to be taught to be greedy and selfish; it comes quite naturally to them. They want what they want when they want it. I have seen this in teenagers, who have established a sense of entitlement, determining that their parents and the world owe them something for just existing, whether it is a car or a huge allowance or the latest technology toy or gadget.
And it has carried over into adulthood for many. A feeling that Madison Avenue and the advertising business plays upon: you deserve that fill-in-the-blank. You can’t live without it. Go get it, even if you can’t afford it. Use your credit card if need be, and you can pay it off slowly but surely. Don’t worry about the rising interest rate on your debt. After all, at least you’ll have the thing you wanted, the thing you needed to exist, the thing they tell you to buy. Greed.
Now, let’s see how this type of greed can affect your investments in the stock market. Is it possible that an investor can become so greedy it affects your relationship to a stock and ultimately harms you rather than does you good? Unfortunately, the answer is a resounding yes. Here’s how:
You buy a stock, after doing some good, resourceful research. This one is a winner. This company has the documentation to prove their growth and income are soaring. They are selling or offering a product most people will easily go out and buy or use. This is a sure thing. And, sure enough, the stock goes up after you buy it. (I’ve often discovered in my own investing that I can move the stock market down by buying a stock and up by selling. Of course, this is not what I intended to do, but it happens more often than I’d like to admit.)
And it keeps going up. Within six months of owning this stock, you’re up 30 percent in profit. You’re patting yourself on the back (if you can reach it), congratulating yourself for your wisdom, your sagacity, your acumen. You may write a book about your Wall Street chops! You sure can pick ’em!
Now, a person who has wrestled with greed in his or her life and defeated the ugly beast would think: “Well, I’ve made a nice profit, so now I’ll sell. After all, 30 percent profit is nothing to shake a stick at.” This kind of person would sell and smile, then begin to do the same kind of intelligent research that put him or her into the winning stock to begin with.
But a person who is greedy would think: “Well, it’s up 30 percent, but what’s to prevent it from going to 40 percent? I’m going to hang in there and let this stock go up, up, and up!” Greed has once again found a victim.
And before you know it, the stock that topped out at 30 percent begins to lose momentum. It goes to 25 percent, and still no sale. It drops to 20 percent profit. Now you’re sure — with the greed element kicking in — it will take off again and soar back into the stratosphere where it was before. But no, it doesn’t do this: it continues to drop like a stone. And by the time you sell, humbled as you have been, the stock is now up only 10 percent, and your greed has gotten the best of you.
As I said, Gordon Gekko was wrong. Greed is not your friend. Not when it comes to investments, be they real estate or stocks. Sensibility should always win out, and greed is to be avoided at all costs.