The Puke Effect

Today I like to educate you about a phenomenondress up their accounts by purging stocks that
most of us have experienced before. I becamehaven't performed well. After all, who wants to
aware of the description through an investmentshow shareholders they've been hanging on to
newsletter I receive. In it Jeff Clark describes it.the worst-performing stocks in the market? So,
It's called the Puke Effect.one by one, the portfolio managers jettison the
Don't be mistaken. It doesn't only apply toequities overboard. As the selling pressure mounts
investing. It applies to many things and in someand the losses deepen, more and more managers
cases has become a behavior.feel the need to purge. Eventually, even the most
Look at your team meetings:experienced money managers are throwing up
Have you put meetings on your schedule thatstocks at bargain-basement prices. It happens
you feel are totally redundant or unnecessary,every quarter.
and only waste your time? Ask yourself howJeff Clark
many of these meetings just get createdIf you are wondering how this applies to
because one person wants to impress anotherleadership, management, and success, think about
person in the hierarchy.this scenario:
How often do you think it happens becauseYou are in a discussion. Can you recall the times
nobody wanted to make a clear decision, so itwhere a discussion about a topic got
was elected to have another meeting about acontroversial? One person came up with a totally
subject?ridiculous idea, somebody made a flip remark, and
Here is how Jeff describes the Puke Effect:then you get the Puke Effect into full swing and
"The cruise was going along just fine."everybody begins purging 'niceties' aboutideas and
Captain Bill was describing the worst sailing trip heindividuals. It all ends in a shouting match, and if
had ever chartered. "We were about halfway tonobody stops it, it can lead to real harm, and hurt
the island when one of the passengers started tofeelings.
get sick..."He didn't quite make it all the way to theWhat's the cure for the Puke Effect?
railing and he threw up on a bunch of theIt is rather simple:
passengers who were sitting right there on theYou need honesty, confidence, and communication
starboard side of the boat."skills.
Captain Bill then went on to describe how theIf you are confident to voice your opinion in a
passengers who had been puked upon startedclear, non-threatening way, and communicate
vomiting as well. Some of them managed toconvincingly, you will avoid meetings that nobody
vomit over the side of the boat. But they wereneeds. You will be able to make decisions when all
throwing up into the wind, and a good portion ofaspects have been discussed. You will be in a role
"breakfast shrapnel" blew back into the boat,that keeps discussions from escalating into a
soaking the clothes, hair, and faces of anyonePuke-Fest.
standing nearby.Best of all, you will be respected, maybe even
"Pretty soon," Bill continued, "everyone wasadored, and people will want to work with you
puking. The stench was so bad, even my crewand seek your advice. One way of learning to
members were blowing chow."have the required combination of confidence,
I first heard this story about 15 years ago, whenhonesty, and communication skill is coaching. You
I was learning to sail. I now recall it at the end ofmight want to try it for 3-6 months and see how
just about every quarter. On Wall Street, they callmuch you can gain in a fairly short amount of
it "portfolio window dressing." I call it the puketime. This is especially recommended if you find
effect.yourself in a position of power and responsibility
At the end of every quarter, portfolio managersand recall events that qualify for the Puke Effect.