If you think your question regarding a particular stock is treated with analytical rigor, think otherwise.

These are, or should be, merry times, with kindness and joyful thoughts taking precedence over normal daily venting. Yet, not of my own volition, I keep finding myself in circumstances which elicit the vilest emotions.

During a recent train ride, I was sitting across from two individuals in business suits who were discussing recent price moves in the large Swiss financial institution UBS. They were concerned about a particularly large position held by one of their clients. As significant losses were accumulating in the account of the client, they were exploring alternative courses of action.

   Gee, I wish we didn’t have to deal with this.

I know what you mean; neither do I.  

   So what do we do now?

I think we ought to hold.

   On what basis? You know he’s going to ask for a reason.

Yeah I know. Always the same.

   He bought the stock when it was far higher than it is now – 22? 23? -, before he became a client, and now he wants us to help him out of his problems.

Well that’s understandable. After all, we are his bankers.

   So how much do you figure he’s willing to lose?

I don’t think he is willing to lose anything. His view is that you don’t lose anything until you sell. He does not think in terms of where is the best place to recover the loss already in the account – with UBS or something else.

   That’s crazy, I know. In that case, what do we think of UBS going forward?

Who knows? If you ask me, all financial stocks – particularly in Europe – are an iffy proposition; UBS in particular? No clue.

   If you figure that he bought the stock at 22 and it is now trading at 12 and its range has been 10 to 20 over the last ten years, I suppose 12 is maybe a little low?

Not exactly rocket science, but it’ll do for me!

   What else do you want me to do? Speak to Erik [ed: the analyst, perhaps]? He’ll tell you the usual stuff about the long term and how Swiss banks always make it in the end.

We all know stocks go up and down all the time and that if you stick with them long enough you’ll come out OK.

   Except of course when they go bust…

Don’t be cheeky now. A position this large is a big risk, but I also think that large institutions tend to last, especially in Switzerland.

   I am not sure that holds true, though I am sure it is the easiest way out.

We tell him to hold.

Listening to the conversation it seemed almost puerile to evaluate any single stock position exclusively by using arguments like client preferences, trading ranges and the-long-run-is-your-friend. Risky businesses get even riskier this way.

Belated Merry Christmas, and best wishes for a happy and healthy 2019.

Roberto Plaja, December 29, 2018

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