In my April newsletter, I described the Trivial Pursuit game that we played (unsuccessfully) during our recent three-week Brazilian cruise. The winning team got the big prize, and the remaining nine teams entered the playoff round to see who would come in second. Our ten-person team was in dead-last position.
Each team could bet anything from one point to the maximum points earned during the competition. The other teams had similar scores and several hundred points more than we did.
Our team had a big discussion about how many points we should wager. Some members wanted to go out in glory, betting all available points in hopes we would get the question right and outscore everyone else.
But then we realized that our odds of getting the final question correct, since we had gotten a lot of questions wrong all week, were slim. And we knew that all the other teams would have to bet most of their available points, since they all had similar scores. We decided to bet only one point, which meant if we got the question right, it wouldn’t help us; but if we got it wrong, it wouldn’t hurt much, either.
You can probably guess what happened. Keeping in line with our performance during the entire cruise, we missed the question. The funny thing was, every other team missed it, too. But the other teams had all bet their maximum number of points, knowing that was the only way they could win. That meant that their scores were reduced to zero. And our team, which had been in last place the entire cruise, became the second-place winner! Our prize was the lovely blue and white Seabourn tote bag pictured above.
What does this teach us about investing? When you lose money on a stock, don’t double down and buy more just because the price is low. Has it underperformed because of poor management decisions? Because of a product recall? Because of increased competition? Think about the reasons for its underperformance. Evaluate the odds that its situation will improve. If you decide, as our Trivial Pursuit team did, that the underperformance will continue, then don’t buy more just because it’s cheap. Hold on to what you own while you wait for a better opportunity to exit. Sometimes the best way to win is by not losing.
The Trivial Pursuit playoff round question: Who is the best-selling female artist in country music history?
The answer: Shania Twain