Why I purchased Citigroup Stock?

This week I did something that I have not done in a long time. I purchased an individual stock. For those that have read my comments in the past know that I am an advocate of passive investing utilizing index funds. There is no guess work just figuring out the asset allocation among different low cost index funds.

So why this week did I purchase a few shares of Citigroup. First off I can afford to lose the bet. I only purchased 500 shares for a total price of $1,750 or $3.50 per share. I am thinking this is one of the largest banks in the United States. It made some very bad decisions with the loan debacle but The Federal Government won't let it die so the upside potential is huge with the economy reviving.

Nah, those are good reasons but is not the real reason. My emotional brain overruled my rational brain after an article I read this week about the fate of stocks that are removed from the Dow Industrial Average. As you probably know this week Citigroup and General Motors were removed from the 30 companies that make up the Dow index. They were replaced by Cisco Systems and Travelers (funny that Travelers used to be part of Citigroup).

The article provided historical evidence where companies that fell out of the Dow fared much better than companies that replace them. Numerous examples were cited. I thought why not when my rational brain was asleep, it is worth taking a gamble. It will be interesting to see how it plays out.

I do think that we have seen the bottom of the recession.

We all need some excitement in our lives including investing. I see no issue with placing 5% of one's investments in very speculative assets. I would consider the purchase of Citigroup as part of my 5% allocation. Even if it goes up, which I expect it will with the economy turning around, it won't be that big of a winner since I only own 500 shares but the excitement is worth more than the dollars that are behind it. I suppose this is why the lottery and gambling are successful since there is no rational reason for doing either but the upside potential is huge. By the way my rational brain wins out here. I have never purchased a lottery ticket or gambled with my own money.

It is okay once in awhile to get off the easy, passive bandwagon.