I get my motivation and focus for writing these blogs based on my conversations with real investors who have money at risk in the financial markets. The recent discussions haven’t been very positive for sure.
This blog’s title is not meant to question one’s state of mind nor decision making process but a reflection on the past and how we approach uncertainty and regret. Given that there are no guarantees in the investing process, an awful lot rides on the past that is beyond logic. We continue to refer back to historical equity return studies, such as a well worn one by Roger Ibbotson, where equities are noted to return in the neighborhood of 8%-10%. Trouble is, there are plenty of peaks and troughs over that 40 year timeframe.
If investing were so easy as to buy an S&P 500 Index fund and just put it away forever, we’d have it made. It is a fact that many a supposedly smart investor lost something like 10 years worth of returns by betting that stocks would be the answer to future wealth and not adequately challenging that well worn theme. We surely cannot go back even one day to change our decisions nor to take a different course of action but we can try to learn a little bit about ourselves and what, if any, behavior is getting in the way of making good decisions.
From my perspective, as a long time money manager, many investors are crowd followers and want to be where everyone else is. If it’s popular then it’s got to be the right place. Who wants to be a contrarian or an outlier? It often pays to be in asset class areas where the prospects for growth are encouraging yet the returns may be a while off. Can you actually be buying when someone else is selling? Do they know something that you don’t?
While it is really difficult to strip out one’s emotions when dealing with money issues, having the help of a professional advisor who is paid to be informed and non emotional can often be the right team player. Information is entering the decision-making process at a rapid pace these days and it is not clear how to decipher what is pertinent to your particular situation. Quite frankly, quantitative computer programs have a voracious appetite for data and will usually be set to mine the data in such a way so as to maximize utility for maximum appreciation potential. The time horizon for holding a particular stock(s) could well be a lot shorter than you were planning. Often for just a few days.
So what is one to do when being proven right or wrong can be seemingly realized in short order? Well, I would suggest a frequent review of your investments and whether the original reason(s) for purchase still exist. Situations are constantly changing and, despite the high levels of market volatility, good companies rarely get bad overnight. You can’t control the media and analyst noise but you can stop and think if there are undertones that bear closer analysis.
If nothing more, take a look at what investments you own on a quarterly basis and what reliable resources you will use to determine whether they are still timely. If you just do not know how to make heads or tails out of it all, what are you doing with money invested anyway? It is in this situation that you shoulda acknowledged you are perhaps in over your head, woulda been better off seeking out a more knowledgeable source of assistance, and coulda been much more on the road to success.
So go ahead and stop being a prisoner of the past. Be aware of your good skills and those that are counterproductive. We all have some of both. Offload those tasks that just don’t correspond with your personality and embrace those that do. You will be a better person in the end and hopefully on the road to success.
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