Done In Yet Again By Behavioral Mistakes


Boeing (BA) got crushed today likely due to the tragic crash of the Ethiopian Airlines crash of the 737 MAX, the second recent crash of this particular type of plane. One theory floating out there is that the plane requires more training that maybe hasn't happened yet and the FAA says it is airworthy. I'm not one to dissect the merits of a specific aircraft but the price action today in the stock is a behavior we've seen (and written about) countless times.

The low occurred in the earliest parts of the day. After what ever degree of panic happened at the open, the stock then clawed back more than half the decline. We saw something similar recently with client holding Nike (NKE) over the Colin Kaepernick story.

Anything can happen going forward with Boeing but selling the immediate reaction is the wrong thing to do the vast majority of the time. If you have a portfolio comprised of individual stocks or that includes more than a few individual stocks with ETFs (a good description of the portfolios I manage for clients) then you have confronted these types of events before and will do in the future.

The 737 MAX story could be a deathblow for BA but I seriously doubt it, tragedy notwithstanding. The kneejerk selling turned out to be wrong in a matter of minutes. The "need" to sell at the open was a behavioral mistake, the kind I write about constantly. The benefits of being emotionally grounded where your portfolio is concerned prevents panic selling as some people clearly did at the open.

When news knocks a stock down so much it is human nature to wonder should I sell? That's ok, the mistake comes from a panic sale not asking the question. One exception to this was Sino Forest from 2011, the news hit, the stock dropped by almost 75% if memory serves and it got no better than that to sell after the news. There's no shortcut to knowing the difference between a soon to be forgotten setback and a deathblow, and maybe it isn't knowable at all, that might be one of the drawbacks to using individual stocks.

The upside of using individual stocks can be this;

I blocked out the name because it doesn't matter but it's lapped the S&P 500 many times over in the last 40 years. If you must know, the blue line is Boeing.