Recently I have heard someone say to me “I hope you are
doing well in the market because I am’. I did not respond to his proclamation nor will
I in the future. This self-proclaimed trader obviously has made some good buys
and sells.
This individual does not realize that he is gambling and
speculating with his money. They can justify each trade with some signal or
trend change or some other indicator. They can even make a logical case for their
stock pick or market timing trade.
Unfortunately for this trader their short-term success will
be met with long term failure. Successful investing is NOT gambling and
speculating. Successful investing involves following a prudent process and
remaining disciplined to that process.
There will be periods when the gamblers will outperform a
prudent portfolio. However, over the long term the prudent portfolio will
outperform.
OK I am going to say this with the risk of repeating myself.
There are three simple rules to successful investing:
- Own
equities and fixed income. - Globally
diversify. - Rebalance.
Each of these rules sound very simple and should be very
easy to follow. Until one of your friends or someone you know tells you
something that scares you into panicking and selling. Or even convinces you that
the next hot stock or asset class will make you rich.
Successful investing is just that investing which means
long term.
One of the reasons the equity markets provide an excellent
return long term is the volatility both up and down. We need to live with the
downturns in order to experience the upturns.
Stock picking and market timing may be more fun to talk
about because it is exciting, especially when you win. But like a gambler
market timers and stock pickers get a high off their trading.
It’s ok to gamble and speculate with fun money but not
money designated for a long term goal, like retirement. If you really want to
gamble and speculate go to Las Vegas, at least you will have more fun when you
lose.
To successfully investor you need to fire your broker/agent
and hire an investor coach/fiduciary adviser.
