Are Your Investment Decisions Based on Emotion or Evidence?

Many of the investors I talk with continue to be apprehensive about the equity markets. Many do not realize the great performance they have lost because they were out of the market. The fear remains from the 2008-9 crash. Some are waiting for the correction to enter the equity markets.

Investment Conference
Investment Conference (Photo credit: Salmaan Taseer)

There are a number of experts predicting a downturn, even a crash, as usual. This may or may not happen. However, true investors realize that downturns are completely normal. They also realize that the market direction is random and unpredictable.

There have been 22,104 trading days since 1928. During this period, the market has closed higher 52% of the time. Fredrick C. Taylor

Keep in mind the S&P 500 has average 9.82% 1927 – 2012.  In order to earn this return you need to be in the market.

Investors allow their emotions to guide their investment decisions rather than relying on evidence.

It is not about:

  • Stock picking
  • Market Timing or
  • Track Record Investing

It is about developing a prudent globally diversified portfolio based on YOUR risk level and remaining disciplined to that strategy. The only real change should be reducing your risk level as you age.

Dalbar research an independent research firm that studies investor behavior found from 1993 – 2012 the S&P 500 Index had a return of 8.21%, however the average investor earned 4.25%.

Why does this happen?

  • Because investors allow their emotions to make investment decisions.
  • Their brokers are more than happy to move their money because they earn new commissions.
  • They have a holding period of a little over three years.

What investors want is to earn stock market returns with treasury bill risk, what they get is treasury bill returns with stock market risk.

Remember this is investing money intended to save for the long term. This is not gambling or speculating money.

The Wall Street bullies will continue to promote fear to encourage investors to trade, often excessively. They will continue to march out ‘experts’ to encourage destructive behavior.  They realize that without the help of an investor coach, investors will continue to trade their money based on emotions rather than evidence.

An investor coach will protect the future you from the current you.

Waiting for the right time to invest in stocks is nothing more than a guessing game. And if you do get it right it is a matter of luck and not skill. The following quote by  — Colin Powell is relevant to investing now.

“More lives and money have been lost by indecision than by making the wrong decision!”

The efficient markets have all the knowable information factored into the current price. The equity markets are random and unpredictable. So with the help of a investor coach you can develop a strategy for your long term financial success and remain disciplined.

Any adviser that will not tell you ‘no’ is not an adviser but rather a salesperson. Your investor coach will help to stay focused on the long term and ignore the short term ‘noise’.

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