Through many discussions with investors I have learned that when things go against them they want to take control.
Stock pickers and day-traders who are actively trading their investments have perceived control over their portfolio. Similarly, people who jump in or out of the market during up or down swings also mistake their activity for control.
In reality, the more activity and trading you generate in a portfolio, the more out of control the portfolio becomes. When an investor trades in their portfolio trying to time the market or find the “best” investment they are doing nothing but add costs and decrease return.
Actively trading your account by picking individual stocks or market timing or picking funds based on past performance is exactly what the Wall Street bullies want you to do.
Stop empowering the Wall Street bullies.
Just because a fund manager or stock picker or market forecaster was right in the past has nothing to do with future performance. Many investors look at past performance as the result of a skillful trader/manager. This has been proven to be incorrect. Because there is no correlation between past performance and future results.
All managers are required to state this somewhere in their literature. Unfortunately for investors it is hidden in the small print or the investor ignores because the salesperson said ‘this time is different’. They might say ‘this is a once in a lifetime opportunity’ or ‘this is a ground floor opportunity’.
Remember, no one can predict the future, no matter how convincing someone is in the media, they are only guessing. In most cases the predictions are never broadcast by the same ‘experts’. The main reason for this is that the ‘hot’ manager right now got there based on luck and not skill. As we all know luck changes. And so do the ‘hot’ managers we see in the media.
The “best” strategy is to have a prudent process and discipline in place Stop trying to study the market to find bargains, statistics prove that it cannot be consistently done. You might get lucky in the short term but long term your results will suffer.
With the case of market timing, getting in and out of the market at the right time requires being right when you get out of the market AND be right when you re-enter the market. This again will result in lower returns.
To succeed long term and reach your financial goals you should
own equities…globally diversify …rebalance.
It may seem easy to develop a prudent portfolio and remain disciplined but research has proven otherwise. People are emotional beings and will be swayed by short term volatility and trade out of the poor performers and buy the hot performers. I don’t know about you but buying high and selling low is not a recipe for success.
This tactic will result in poor results and anxiety. Investors need the assistance of an investor coach/fiduciary adviser to keep them disciplined in both up and down markets.
