Three words for clients: Don’t sell low

In grade 7, I took a electronics class to fulfill a shop requirement. The class, supervised by a math teacher who didn’t want to be there, was basically a joke.

We spent most of our time burning our fingers with soldering irons and deciphering a bunch of Tintin comic books left behind by a French class that had used the room in the prior term.

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Then, I got fascinated by another piece of classroom detritus – a small grey-green metal device the size of a toaster oven that had the words “Stock Market Predictor” stenciled on its front.

The little machine had four knobs that let a user dial in the Dow Jones Industrial Average, the S&P 500, and closing numbers for the New York and American stock exchanges.

Amusingly, the highest value for the Dow was 2,500 and the highest for the S&P was 700. Things have changed since 1975.

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When all the data was dialed in, there was a final switch labeled “Market Trend” next to a pair of lights labeled “Buy” and “Sell” that would presumably provide the user with impartial advice.

No matter where I set the dials, I noticed a consistent pattern. If the market trend was up, the machine told me to sell. If it was down, it told me to buy. There was no hold light.

Eventually, I got frustrated enough to pick up a screwdriver and open the thing (the teacher had told us to “learn by doing”). What I found was that all the magic dials were held on by locking nuts and didn’t actually connect to any electronic components.

The only thing that was wired was the “Market Trend” toggle switch and the two sockets for the “Buy” and “Sell” lights.

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I reported my findings to the teacher, who walked over to the workbench and laughed. “Oh, you found that thing? I built it five years ago for a summer-school economics class I teach at the university. Nobody ever got suspicious enough to take it apart before.”

He went on to explain the contraption was designed to teach a simple lesson – buy low, sell high, and never unload stocks when markets are falling. Whenever possible, don’t sell an investment for less than what you paid.

More than 40 years later, it’s a lesson we still need to remember.

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Philip Porado is a veteran Toronto-based journalist who specializes in financial and business topics. Prior to immigrating to Canada in 2004, he covered brokerage compliance, real estate, housing policy, architecture and technology for several U.S. publications.