Stock Play Accounts are Meant to be FunJuly 5, 2017 11:18 am
There is still a bit of the 1990’s stock enthusiast in many investors. I see it in our clients who have unmanaged accounts (accounts we don’t advise on), that I sometimes call “play accounts.” These are often small trading accounts that originated when someone heard a stock tip compelling or when they wanted to own a company product they found irresistible.
Apple (AAPL) is probably the most recognizable stock in play accounts. Which of you owners of Apple don’t feel brilliant, even with the dip that it has experienced very recently? I have a colleague who likes to remind me that if he and I personally had purchased a bunch of Apple stock ten years ago with our non-retirement money, those accounts would make us feel very wealthy today. (Clearly, we weren’t the brilliant ones.)
Another common group of stocks in play accounts are known as FANG. To recall, FANG is the famous group of companies (Facebook, Amazon, Netflix, and Google) which led the markets in 2015 and again earlier this year, driving the tech sector higher and dragging the S&P along with them. These darlings had something in common: they sold recognizable and popular products. In other words, they had a story that users and investors loved. Even after the recent pullback, they have been worthy investments for those who have held onto them over the longer term.
Whether you own Apple and FANG or some other group of stocks, more often than not you have an emotional attachment to them. They can offer enviable bragging rights and can easily be discussed socially. They give you a sense of owning a piece of the action and a chance at success. But sometimes the emotional attachment can get in the way.
If you opt to have a play account, it is best to remember the following three rules.
- Never invest more than you can afford to lose. This is the most important rule. Play accounts are not part of your retirement planning. When putting money down on a stock, even though you are unlikely to lose all of your investment, pretend that you might. If you are miserable with the thought of the loss, invest less. Stock picking – for all of its glories – can be very humbling.
- Sell high. Forget the bragging rights – take your profits. You don’t have to sell all of the stock, just some of it when the price is high. If the price continues to rise after you sell it, have no regrets – the value of your investment could end up where it was before you sold the first time. If the price falls, congratulate yourself on making the right choice. All too often when the price of a stock is going up, I hear, “But it is doing so well!!” That is precisely the moment to sell.
- Understand concentrated risk. Play accounts are not intended to be good diversifiers. Often they include only a small handful of stocks, and can be very lopsided if one stock grows while others languish. Think in terms of a dollar amount you want to keep invested and then buy and sell to maintain that amount, ensuring that your risk is spread across all the holdings you have.
Overall, you are better off if you can think of a play account as something you can learn from. Done right, the account can help you understand the risks and rewards associated with investing. Above all else, it is important to remain actively involved, following your investments in good times and bad. And remember – play accounts are meant to be fun. When the fun stops, divest your interest and move on.
The information contained in this post is not intended as investment, tax or legal advice. StrategicPoint Investment Advisors assumes no responsibility for any action or inaction resulting from the contents herein. Betsey’s opinions and comments expressed on this site are her own and may not accurately reflect those of the firm. Third party content does not reflect the view of the firm and is not reviewed for completeness or accuracy. It is provided for ease of reference.