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BFG in the News: James answers a reader’s question about investing in a friend’s company

Investing Baron Team Insights

James Suazo, ChFC®, is quoted on this topic, answering a reader’s question on NJMoneyHelp.com by Karin Price Mueller, “I invested in a friend’s company.  Should I sell out?”, originally published on November 1, 2023.  

A 30-second read by James Suazo, ChFC®:  Working with a financial advisor can help you determine a course of action that takes into account your willingness and ability to take risks while keeping emotions out of investing. It may not be wrong for you to sell, however there are a few questions to discuss to arrive at a decision.

You may experience several behavioral finance biases as you work through this decision-making process. One is fear of regret. As investors, we sometimes experience this fear of regret because we do not want to make the wrong decision and so do not take any action. To tackle this, ask yourself what was the goal of the initial investment? Do you have the same goal, and is your tolerance for risk currently the same? If you are not comfortable with the current risk exposure and don’t have the time to research the company, you may want to sell the investment. 

Another bias you may experience is "anchoring". This is the tendency we have as investors to attach ourselves to a certain price as the value of the investment instead of the market value. Given your initial investment is half, if presented with the investment opportunity today, would you invest in the company? If the answer is yes, then you may want to stick with the current investment. 

Having a financial plan in place is key to making informed decisions for your portfolio.  Given the fact that you may consider this play money, the decision may not be critical to your overall financial well-being.

Read Karin Price Mueller’s article here.

If you have any further questions, please reach out to your Baron Team.

Disclosure: This is a general communication being provided for informational purposes only. Past performance is no guarantee of future results. Every investment strategy has the potential for profit or loss. This material is not intended to be relied upon as a forecast, research, tax, or investment advice.