Have you ever felt like something was more important to you after you couldn’t have it anymore? On Tuesday, I watch CNBC’s one hour special on the rise of McDonalds and it made me really want to go there for dinner since I grew up loving this particular fast food restaurant. I waited patiently for my fiancée to come home and we set out to one of the McDonalds that were close to our house. When we got there, there was a sign that says:
The dining area is being renovated, please use the drive thru.
I was really upset to see the sign since I wasted my gas and time to get there and at this point I was determined to have my McChicken sandwich. I decided that I would drive along the road I was on until I found another McDonalds as I could not think of where another one would be. Fortunately, I was able to find another one 5 minutes later and had a very happy meal (no pun intended) but I could have wasted much, much more gas doing this. For the rest of this article, I will call this phenomenon of wasting more because I felt deprived of something I wanted the “McChicken-less effect”.
Readers that stuck with my story this far must be thinking why in the **#$(@#* does this relate to personal finance. While the story has nothing to do with this topic, the McChicken-less effect certainly applies to many ideas we talk about in personal finance.
There are many different analogies we can discuss about but I want to talk about investing in this particular article. Since the McChicken-less effect apply to the way I buy stocks, I often end up paying more than I needed to so let me explain.
Let’s say a stock is trading at $80.10 at this instant. If I wanted to buy it, I might put in a limit price (the highest price I’m willing to buy each share at) of $79.90. If it goes lower than $79.90, great, I purchase the stocks. Sometimes though, the price goes up to $80.50 and maybe even higher. Since I really wanted to buy the stock, I might raise my limit price to $80.40. Sometimes, the price could rise to $80.90 and I would repeat the process. Because of the McChicken-less effect, I would sometimes end up paying 0.50% or even 1% more than the original price I could’ve bought it at. Of course, 80% of the time the price drops back down to $80.10 later in the day and other times even lower because stock prices fluctuate constantly.
Even though I know about this, I cannot stop myself at times from being a victim of the McChicken-less effect. I end up paying more because I want it more. What I really should be doing is be patient and accept the fact that not everything goes the way I expect. I should also realize that at times something I cannot get might be blessing in disguise. I need to tone down my expectations for the perfect scenario. If you are like me, you should do the same.
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{ 10 comments… read them below or add one }
As for paying more than a stock then you really wanted to, it’s just something you have to deal with. If you paid 1% more than you wanted to and the stock went up 5-10% that day, you’d be praising yourself that you paid a little more to get what you want (then you can take the proceeds from that stock sale to buy 2 McChicken sandwiches). =)
Of course the opposite happens as well, but unless you were looking to cash out that same day, you shouldn’t get too frustrated over paying a bit more than you wanted.
Neville: Everything is just relative I guess. I’m hoping I will be able to not chase the price, or instead of trying to shave every cent, I will put a limit price that is higher than the current price. For example, I will put a price of $85.25 when the stock is trading at $85.15 if I really wanted to buy it.
2 McChicken sandwiches would be nice but I don’t think my fiancee will like the idea so much because of health reasons!
We want most what we can’t have
MoneyNing,
Have some carrots and spinach for breakfast. For lunch have your 2 McChicken feast. Finish off the day with a fruit salad.
That way you get to have your fun and you can still explain to your fiancee that you had your daily serving of fruits and vegetables. =)
Food is like investing….its nice at times to have a balanced “portfolio”.
Modern: I know!!! We need to change that.
Neville: I hate carrots!! Actually, I’m not a big fan of vegetables and eat it only because of necessity.
I like the “food is like investing” thing though
I’ve been buying AAV & HTE on dips.
Everytime the stock goes up I cringe. Yes, I’m making more money on my investment, but they pay out a monthly dividend that gets re-invested.
If the stock falls, I get more stock in the long.
Is this the anti-McChiken-less effect
But why didn’t you just go through the drive thru?
Clever Dude: I didn’t go through the drive thru because I didn’t want to eat on the street or home. I wanted the whole experience
Understandable. For us, eating fast food during the week is a treat. I grew up eating fast food (McD, Taco Bell, BK, etc.), which was none too healthy.
In high school (1 year) and college (2 years), I worked at McD’s. I was just telling my coworker today that the reason I didn’t get sick of them when I worked there (or at KFC) was probably because I made my own food. I would stuff those breakfast burritos so full you could barely close them.
Man I was unhealthy then. I’ve improved, but now I need to shed those pounds even more!
Clever Dude: I have many fond memories of eating at McDonalds too (like spending $20 worth of stuff and finishing it all for instance)
I can never do that anymore but those were the good old days!