FOOL'S EYE VIEW
Your Losses Are Your Fault

By Stephen Bland (TMFPyad)
March 5, 2001

There is a trend in society to try and blame others for your misfortunes. Or maybe it was always thus and I am just a sad old fart looking back with misplaced nostalgia at a time that never really existed outside of my imagination.

You can see it with companies when they publish poor results: the directorspeak will frequently pin this on the strong pound or the weather or the fuel blockade or Mrs Director had a headache or whatever. When did you last read a report stating that earnings per share was down because they, the directors, had cocked up? Of course if EPS is rising nicely then naturally they will take pride in stating how their careful directing was the key to this result. A bit like politicians who in bad times will blame world events for problems, but are happy to take the credit in good times.

The difference, though, is that governments of democratic countries have little real control over economic events in my view, they are at the mercy of them. In contrast, company directors do have control over their company's affairs.

To my mind, anybody with the audacity to call themselves a director has to take with that the responsibility for directing. That means admitting culpability when appropriate as well as being pleased with themselves in the good times. But you won't often read such reports.

But that is company directors and politicians. Closer to home a similar malaise seems to strike many small investors when they lose money in shares. I almost never post on individual company message boards but I sometimes cruise them. The phenomenon of the most popular boards being those dedicated to the worst-performing shares has been documented before by my colleagues but it is a fascinating one.

It shows, unfortunately, that a lot of Foolish investors are much more like the great majority of small investors: more foolish than Foolish, following crowds and losing huge amounts of money in collapsed techs and so on. It is sad for me because it illustrates that as far as those message boards go, we have failed in two of our missions: educate and enrich. Those boards should, you'd think, be the least popular, but the reverse is true.

But the contrarian indicator of our share boards is not my main point. It is that you can sometimes read of people losing what to them are enormous sums, but blaming others for it, market makers being the most popular target.

Look in the mirror. There is the person completely responsible for your investment decisions. Nobody else, not market makers, not the press, not short traders, nobody. If you have lost your shirt on techs you are looking at the person whose fault it was. It is an absolute abrogation of your responsibility to your wallet, your family's wallet if you have one, to try and pin this on another.

One particular sad story caused me to write this. The author accepted a lot of the blame for being ruined, in debt that he had incurred to buy shares on credit that he could no longer pay for, but then made a comment about market makers manipulating the market. Well, of course they do, but not in some malicious way as suggested. Without them there would be no market, and they run large risks. They do not care about the shares in which they make a market, but they care about making money from them. Consequently they will always try to price so as to win. So does any dealer in anything. In the same way, investors trade shares hoping to win. It is only business, and to blame them in any way at all for losing money in shares is misplaced.

Anybody who decides to buy shares bears all the responsibility for that decision. If they win then fine, that is their good luck or judgement. But if they lose then in exactly the same way it is their fault. It is bitterness over losses that leads people to blame market makers or other external forces: emotions become frayed. But it is wrong. Reluctance to accept responsibility for failure, although superficially it appears to relieve the individual of some blame, does not aid recovery.

You have to tell yourself that you blew it and you alone did so. Then analyse where you went wrong -- you, nobody else -- then you will be in a position to do something about it. But blaming others leads to paralysis of action. "It wasn't your fault, therefore there is nothing you can do about it." Accept responsibility because with it comes a certain investment maturity that may stand you well in future as you revise your strategy.