The Best Advice On Giving Investment Advice

Includes: MCD
by: Richard Bloch

Because I write for Seeking Alpha, colleagues, friends and family sometimes talk to me about their investments. In many cases, I'll offer my general view, but won't often provide actionable advice.

That's because I've adopted a rule on giving investment advice to those personally close to me: Avoid doing so unless the decision is one where you believe, "this has disaster written all over it."

A friend of mine recently sold all of his stock in McDonald's (NYSE:MCD) - all in one fell swoop.

First of all, I'm bullish on McDonald's - and am of the opinion that you hold onto stocks that have raised their dividends every single year for the last 35 years - or at least hold onto to some of the stock.

However, unless you need the money right away, I can think of several ways to scale out of a position - sell covered calls for an extra 1% per month until called away, establish a series of trailing stop orders, etc.

But I held my tongue. Why? I was inspired by an exchange I read on the forum many years ago.

Someone's 38-year old son was going to buy what appeared to be a very expensive variable annuity, something that may have been way too conservative for such a young investor. But "nisiprius" offered some sage advice on giving advice:

Another thing to keep in mind - especially in situations where someone else is doing something sub-optimal.

If someone you care about is investing in something seriously unsuitable - like putting half their nest egg into an individual REIT or going partners in a local restaurant with no experience running a small business - then one might consider intervening.

If someone you care about is investing in something reasonably sensible and reasonably suitable - just mediocre and overpriced and fee-ridden - that's not the end of the world.

You intervene if someone is doing something wrong, you don't intervene just because you think they're overpaying, or you think something else is better, or it isn't the way you'd do it.

… I think he's probably doing something that's well within the range of prudence and sanity. Not what I'd choose, not what you'd choose, not the best choice, but not by any means terrible

... It's like buying an overpriced car - as distinct from buying an unsafe car.

So while selling all one's shares in a quality company like McDonald's in one transaction isn't something I'd do, it's merely sub-optimal in my view. It certainly does not qualify as "seriously unsuitable."

Following this general rule has saved me, my friends, my colleagues, and my family a lot of needless arguing and hurt feelings, which wouldn't have done much good.

And it could be a lot easier on you, too.

After all, when we're asked for our opinions, it's flattering, but it's so easy to get miffed when our opinions are not heeded. Just don't take it so personally when someone does something sub-optimal, but consider intervening if you can when an investment idea seems seriously unsuitable or even dangerously absurd.

I don't know who you are "nisiprius," but thanks for that advice. It's the best advice on giving advice I've ever read.

Disclosure: I am long MCD.