Cold heart works best when buying, selling stocks

05/01/2007 2:24 PM

05/01/2007 2:33 PM

When pop star Tina Turner sang "What's love got to do with it?" she wasn't talking about investing, but she might as well have been.

Experts say that one of the worst traps for investors is falling in love with their stocks, no matter how much money they make for you, or what their biggest boosters say.

John Bogle, founder of the Vanguard Group, said even the mightiest of stocks can take spectacular falls, making a once-seductive investment a money-loser. He cited General Motors, whose shares have plunged about 48 percent over the past five years.

"The idea of having a permanent franchise for a business is pretty farfetched," Bogle said.

It is particularly ridiculous to become permanently smitten with a mutual fund, according to Bogle, since their managers stay on an average of just five years.

Professional investors look at their stocks like the most ruthless employers view workers. Good performers are kept while laggards are tossed out. Emotions have no place in the process.

"It's about making money," said Kathleen Piaggesi, a Scarsdale, N.Y.-based financial planner. "If the stock or a fund is down and you are concerned about it, you need to sit back and say, `What's going on with this particular investment?'"

And be ready to dump it like a two-timing lover if you don't like the answer.

Compounding matters is the fact that advice from Wall Street analysts isn't always useful. Google, Genentech and Starbucks are all stocks that Wall Street regularly gushes over even though they haven't brought much joy lately to investors.

Shares of Google have barely budged this year, gaining a mere 1.4 percent even though most Wall Street analysts consider it a buy and have a mean 12-month target price on the shares of $565.45, about $100 more than where they currently trade.

Genentech, which trades at about $82, is supposed to hit $96 and another favorite of Wall Street, Starbucks is expected jump another $12 to $42.80. So far this year, Genentech has barely moved while Starbucks is down 13 percent.

What happened?

Well, investors are always worried about whether Google's growth is sustainable. Genentech recently said first quarter sales will be flat compared to the fourth quarter and Starbucks' ambitious expansion plan worries investors as does growing competition from McDonald's.

Remember that markets move on psychology and investors' nerves can be frayed by companies that seem invincible, such as Apple.

Shares are down about 4 percent over the past three months in part because of delays in its new operating system. Of course, the reason for the delay is because engineers working on that project are needed for the much-hyped iPhone. So far this year, the shares are up a respectable 6 percent, outperforming the Nasdaq, which gained 3 percent during that time.

This underscores why investors need to make informed decisions about their portfolio since stocks fall in and out of favor on Wall Street quicker than pop stars do with teenagers.

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