I was recently reminded how we can have mental blockers about many money-related concepts. In many cases, they are based on principals we define for ourselves through experiences.
One example I encountered was that a gentleman had decided to never pay for a ferry reservation again on the reasoning that they made enough money already. I found the reasoning a little odd as the reservation can save you a lot of time waiting in a parking lot during a busy weekend. As it happens, the person was retired and probably has all the time to wait for the ferry but he decided that he wanted to stick it to the ferry corporation thus creating a mental blocker.
Another example relates to choosing to put your bonus in your RRSP. The reasoning I often hear is this: “I don’t want to pay tax so I put it in my RRSP”. The idea of paying taxes, in this case, is the mental blocker as you will eventually pay taxes anyways. Simply choosing to put the money in your RRSP to save it is a perfect choice. Doing something just so you don’t pay tax may limit your other options. What if you are paying 8% interest on a car loan while you are doing that?
Investing Mental Blockers
I have heard some investing mental blockers over time that I will share with you. Let me know those you have heard.
“Not enough money to buy stocks”
This was my mental blockers for many years. I invested in mutual funds because I thought I did not have enough money. All I needed was to learn about Computershare and I would have been free of high management fees. Dividend ETFs weren’t really around back then so I felt my choices were limited.
Related: Computershare Guide
“Stock is at 52 weeks high” / “Stock is too high now”
This can be a blocker that prevents you from buying a good stock. I have actually purchased some of my best investments at 52 week high. It’s always important to understand that every quarter can change the expectations for a company and that’s often why the stock keeps on growing. There will be bumps near the top but it will eventually make a new high. A great example is Canadian National Railway (TSE:CNR) or even some of the Canadian Banks since 2009.
Related: Railway – The unstoppable sector
“Market is overvalued”
Just recently, we made new highs in the markets. New highs will continue to happen and that’s just how it’s going to be. The market is an average of everything and not everything moves the same way. Each sector can go up and down regardless of what the other sector is doing. It’s important to focus on the company you are looking at and compare it against its peers as well as itself. When you invest in a company, it’s the company you want to look at and not the market as a whole.
Just don’t put all the stocks in the same bucket as all sectors and regions have a way flow on their own.
“Stock is too expensive”
I can only think of a handful of stocks that are too expensive such as Berkshire Hathaway (BRK.A) at over $200K. On the other hand, a $100 stock should not be seen any differently than a $20 stock. A price movement of 10% for either stock give you the same profit regardless of the number of shares you may have. The only difference is the added cost to your share from the purchase fee.
Obviously, it’s a lot easier to DRIP a $20 stock since your dividends don’t have to be too high but I don’t think it should drive your decision.