What is Your Investment Formula?

To be a successful investor this is what your equation must look:

Cognitive greater than > (Intuition + Perception + Emotion) * Media

As a result of the Wall Street bullies tactics, investors have been convinced that the right equation is Cognitive less than < (Intuition + Perception + Emotion) * Media.

English: 60 Wall Street
English: 60 Wall Street (Photo credit: Wikipedia)

In other words to be a successful investor you must make your decisions based on academically proven concepts (cognitive). Cognitive then is using your mind logically.

The Wall Street bullies want you to use your emotions to make investment decisions.

These bullies use the media to sway investors. By making assertions that  the Wall Street bullies know what the future will bring. Investors are exposed to the bullies propaganda on a daily basis. The Wall Street bullies need the investor to continually move their money.

These bullies makes money on every trade, therefore it is in the Wall Street bullies best interest to keep you trading.

Some of their tactics include convincing the investing public that they can tell them which stocks/asset classes/asset sectors will outperform in the future (stock picking). It has been proven time and again that there is zero correlation between past performance and future results.

Essentially it means that past successes were a matter of luck and not skill.

Another tactic the bullies employ is market timing. This tactic involves telling you when to get out of the market to avoid downturns. Assuming the Wall Street bullies are successful in getting out of the market at the right time.  They must then get you back into the market at the right time to capture all/most of the up market. Evidence has proven that this tactic has been unsuccessful. Again any success is a matter of luck and not skill and not repeatable.

Finally the Wall Street bullies use track records to entice investors to invest with their fund. All evidence points to zero correlation between past performance and future results. Yet again success here is a matter of luck and not skill and NOT repeatable.

The purpose of each one of these tactics is to keep the investors’ money moving from one asset class/stock to another. The Wall Street bullies know that investors are looking for stock market returns with Treasury bill risk. What investors end up earning, is Treasury bill returns with stock market risk.

Dalbar research an independent think tank that studies investors’ behavior found that for a twenty year period ending in 2012 investors earned 4.25% while the Standard & Poors 500 earned 8.21%.  By following their emotions investors cost themselves’ dearly.

The Wall Street bullies will continue to victimize investors by using these tactics.

Stop being a victim and hire an investor coach. Your coach will help to determine the right prudent portfolio for you. As time goes by your coach will teach the right things about investing.

A coach will also keep you disciplined to your strategy.

As opposed to the typical broker who will use every downturn as an opportunity to sell you more ‘stuff’.

To succeed in investing you must:

  • Own equities and fixed income
  • Globally diversify
  • Rebalance

Your investment formula will determine your level of success. Find the right investor coach and learn how to succeed long term.

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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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