The myth
After all the time you’ve spent researching, managing, and putting your hard-earned money into stocks, bonds, and other types of investments, you may start to become attached to certain assets and favor them over others.
However, some people would advise against becoming attached to, or "falling in love" with, an investment. They believe this can cloud your judgment, especially when you need to make difficult choices.
The reality
Emotions and investing don’t mix well. To make rational decisions when handling your money, you must do your best to avoid acting on impulses or feelings.
Here are the possible downsides of becoming too attached to certain investments:
- Biased thinking
When you’re overly fond of an investment, you may only listen to news that paints it in a positive light while instantly dismissing negative information about it.
This is called confirmation bias, or the tendency to only accept information that supports the beliefs you already have.
There are other ways biased thinking can cloud your judgment as an investor, like sticking only to asset types or products you’re already familiar with.
You may also become reluctant to even consider new opportunities or understand other asset classes outside your portfolio.
- Lack of diversification
Another danger of putting certain investments on a pedestal is that you may fail to look beyond them. You might end up placing most of your money in just 1 or a handful of assets, thinking that they’ll always outperform others.
This can lead to a lack of diversification. It essentially means you won’t have a backup in case your favorite company or investment performs badly.
- Holding on to losing investments too long
It can be difficult to admit that an investment isn’t working out, especially if you’ve spent a lot of time, money, and effort on it.
A common mistake that investors make is holding onto a losing investment for too long in hopes that it’ll eventually recover, even when there’s no solid reason to expect this.
While you shouldn’t react impulsively to the ups and downs of the market, there may be times when it’s best to pull your money out of an investment.
This is a decision you must make with a clear head and without your feelings getting in the way.
Verdict: Mostly true.
There's nothing wrong with favoring certain companies or investments. However, it's best to maintain an unbiased view so you can make rational investing decisions.
You should be ready to make adjustments when necessary and without letting your emotions take control.
