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Do not judge an investment decision by the outcome

Do not judge an investment decision by the outcome

August 15, 2021

Having a successful investment outcome does not automatically mean you made a good decision.

The natural flow to an investment conversation often starts with someone saying they made a decision to buy a specific investment. Happily, the investment appreciated in value.

Their conclusion is, “I made a good decision”.

Not necessarily. The dangerous part of that conclusion is they might continue making those types of decisions which, in fact, are poor decisions.

For example, your child will start their post-secondary education. In a few years, you have successfully saved and invested money in anticipation and the hope that they would continue with their studies.

You hear of an excellent investment opportunity that is too good to pass up. So, you invest all the money in the one stock. A few years later, you sell that investment for three times more than what it cost.

You had a good outcome, but the actual decision you made was far from good.

You gambled the financial stability of your child’s education on one stock. Stocks can go up and fortunately the one you purchased did.

But stocks also can go down. Your child was due to attend university in just a few years and therefore you did not have time on your side if you needed to be patient and hope your stock would return to its original value if in fact it had declined.

Plus, there was not ample diversification. Putting all your eggs in one basket for something so important as a child’s education, in my opinion, is not a good decision.

A good decision is one that is logical, well-thought-out based on information available to you at that time. Not just the investment outcome.

Peter Watson is registered with Aligned Capital Partners Inc. (ACPI) to provide investment advice. Investment products are provided by ACPI. ACPI is a member of the Investment Industry Regulatory Organization of Canada. The opinions expressed are those of the author and not necessarily those of ACPI. Peter Watson provides wealth management services through Watson Investments.