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Zombie Assets? In My Portfolio? It's More Likely Than You Think

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Bob Stammers reveals the secrets of discovering your undead investments and how to get rid of them.

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MINYANVILLE ORIGINAL Investors sometimes think of themselves as the objective, well-reasoning heroes of a zombie movie. They believe that they can make financial decisions based purely on the numbers, refusing to make excuses for failing stocks, or hold on to decaying properties. However, when it's a family house or a long-possessed stock that's threatening the survival of your portfolio, making the decision to cut your losses can feel like deserting a loved one.

Recently, I spoke to Bob Stammers, the director of investor education for the CFA institute, who has encountered his fair share of investors struggling to realize that their assets are more dead than alive, and he shared a few tips to help you better identify and kill your own zombie assets.

Stammers defines a zombie asset as one that continually underperforms, both in the market and within its sector. Most of the time, theseare the stocks that we find ourselves emotionally attached to either because it was inherited or part of a beloved company. Stammers explained how timber buyers seek out families that had inherited timberland, hoping to buy or lease their land, but often run into problems:

What happened was they didn't know how to manage the timber and it cost them a lot of money to maintain it, pay the taxes, and for them it was a zombie asset…they weren't getting any return from it, but they couldn't get rid of it. They would say, "It's been in the family for generations, we can't get rid of this asset."

Zombie assets can also be revealed during one's efforts to diversify their holdings in each sector. While some sectors perform well at different times, it's always a good idea to take note of which stocks perform poorly continuously. Removing such stocks from your portfolio may reduce your presence in a given sector, but it should save you money overall.

If you still find yourself unable to remove the undead stocks from your portfolio, then it's time to call your own personal Van Helsing: A financial advisor. It might seem like an extraneous expense at first, but the objective advice from an investment expert might be what you really need to open your eyes to your asset's true nature. Even if your financial advice currently comes from a financially knowledgeable family member, Stammers believes that obtaining objective guidance from another person is essential towards making sound financial decisions.

He concludes, "Investing for most people is an emotional event, and it shouldn't be...the only way to really counteract it is to have someone else giving you objective advice to help you with those decisions [and] to get the emotion out of your decision making. It creates that investment discipline that we usually talk about."

For more from Bob Stammers and the CFA Institute visit TrustCFA.org
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