The irony of our behaviour as investors is that investing should help us prosper yet the opposite happens. We suffer because what we believe, what we say and what we do are out of sync. There is a big gap. Let me show you how.
Take some examples.
First the most cliched one.
To make money from stocks, we should buy low and sell high. What do we do? Haha!
Next, we invest in equities for high returns but without the volatility. We want consistency of delivery like an FD.
We fully understand that growth with equity investing takes time (5, 7 or 10 years) and yet we get jittery if it fails to deliver in 1, 2 or 3 years.
We come in for the long term but we want to book profits as soon as a stock or a fund value goes up by 20, 30 or 50%.
We know that following best performing past funds/stocks recommendations may not be the right way to invest and yet we make those articles the biggest hits, so much so that they keep coming back – edition after edition.
We know that concentration is good for better returns (alpha). That 2 or 3 mutual funds or a dozen stocks are enough to achieve the required diversification too, yet we love to spread ourselves in all direction such as adding 10, 20 or 30 funds. Let’s not even count the stocks.
We know that to win we need to focus our efforts and resources and yet we run in all directions, trying to catch the next big thing.
We value investing convenience in investing (one click transactions on the mobile) more than the right advice.
We know a plan can help us get the right direction, discover the chinks in the armour and define a meaningful strategy, yet we just continue making random transactions. (Think software, house or a car.)
We know an advisor (tax, investments, planning) can bring in expertise and develop perspectives to help us make right decisions, yet we avoid engaging one.
Finally, we know that prevention is better than cure and we should avoid making big mistakes, yet we start to think about money and investments only when we are hit by a boulder.
Carl Richards, a financial planner and an author, has identified such and more behaviour issues and famously termed them as the Behaviour gap. It is a series of illustrations available on his site as well as in a book format. If you are serious about becoming a good investor, it is a recommended read.
Yet another thing you can rely on to make your investing behaviour better is the Investing 101 – an email series about some of the most important things in investing.
What is the irony in your investing behaviour? Do share.