Buying Used Stock
Jan 29 2010
Attitude has a huge influence on our decision-making. Whether we are trusting or dubious, optimistic or pessimistic determines the issues and questions we judge to be important in the process.
A good example is buying a car. We have different attitudes when considering a new car than we do when looking at used cars. With new cars we are distracted by the – well, newness – all shiny and fresh and with that new car smell. With used cars we notice the scratches and road dings and that funny odor when you turn on the air conditioner.
With used cars we wonder why the owner wants to sell – is he hiding something that is wrong with the car? We are, in a word, skeptical.
Buying a stock is very much like buying a used car. In virtually all cases (except for initial public offerings) the stock you buy is being sold by someone else. You are buying a used stock.
So it pays to be just as skeptical when buying a used stock as when buying a used car. In fact, you should ask the same questions: “Why does the owner want to sell – is he is hiding something that is wrong with the stock?”
If you think that’s silly, how would you feel if you knew you were buying the same stock Warren Buffett was selling?
