Archive for October, 2012

80 reasons your investment performance is not as good as it should be

  1. You think investing is about picking winning stocks.
  2. You have Internet- or smartphone-induced ADHD and can’t think deeply about this topic.
  3. You equate investing with gambling.  [elaboration]
  4. You want to get rich quickly.
  5. You think others have a crystal ball and pay too much attention to their forecasts.  [elaboration]
  6. You oversimplify.
  7. You misunderstand the relationship between stock markets and the economy.
  8. You think there is a straightforward relationship between a company’s success and its stock price.
  9. You are quick to jump to conclusions.
  10. You focus too much on the short term.
  11. You don’t understand the feedback loop for measuring results.
  12. You are unduly swayed by stories.
  13. You ignore the lessons of history.
  14. You think that past performance is an accurate guide to the future.  [elaboration]
  15. You focus on the trees instead of the forest.
  16. You overemphasize the importance of yield.
  17. You don’t understand the mathematics of investing.
  18. You see patterns in random data and draw erroneous conclusions from them.
  19. You don’t understand why stocks go up and down.  [elaboration]
  20. You pay too much attention to irrelevant numbers.
  21. You confuse a decline in price with a permanent loss (and a rise in price with a permanent gain).
  22. You believe that risk can be turned up and down like the volume on your radio.
  23. You misunderstand the nature of market volatility and overvalue stability.  [elaboration]
  24. You think a rising stock market is always better than a falling stock market.
  25. You underestimate the impact of inflation.
  26. You want more certainty than is possible.
  27. You let others do the thinking and you follow their actions.
  28. You underestimate your own ability to successfully invest.
  29. You overestimate your ability to pick winning investments.
  30. You have unrealistic expectations about the market’s behavior and your own performance.
  31. You overestimate the extent of your knowledge about a particular investment.  [elaboration]
  32. You are too optimistic about the investments you make.
  33. You overvalue what you own.
  34. You spend too much time hoping and dreaming.  [elaboration]
  35. You attribute your winning investments to your own brilliance and attribute your losing investments to bad luck.
  36. You pay much more attention to information which supports your assumptions and beliefs than information that contradicts or challenges them.
  37. You are afraid to make a decision that might turn out poorly.
  38. You think too much about proceeds and not enough about process.
  39. You are scared to make fundamental changes to your investing process.
  40. Your mental model of how to invest has fundamental flaws.  [elaboration]
  41. You spend too much time and attention on items you cannot control.
  42. You focus far too much on what to buy and whether now is the right time and not nearly enough about how much to invest.  [elaboration]
  43. Your financial assets are concentrated in too few categories.
  44. You try to control risk by security selection.
  45. You think the house you own is an investment.
  46. You borrow money to invest without fully understanding the risks involved.
  47. You hold too much cash.
  48. You think that investing your money outside this country is a foreign idea.
  49. You invest in asset classes that have a negative expected return.
  50. You let your asset allocations drift.  [elaboration]
  51. You buy assets without paying attention to their value.
  52. You only buy stocks of familiar companies.
  53. You equate average with mediocre.
  54. You are too concerned about the impact of taxes.
  55. You are not concerned enough about the impact of taxes.
  56. You own too many bond investments.
  57. You own too few bond investments.  [elaboration]
  58. You are afraid to buy when markets are declining because they might go lower.
  59. You are afraid to buy when markets are rising because you fear it is too late.
  60. You take actions to avoid losses and forego large gains as a result.
  61. You don’t ever want to sell anything.
  62. You freak out and sell out at market bottoms.
  63. You wait until markets appear “safe” before buying.
  64. You trade too much.
  65. You don’t trade enough.
  66. You underestimate the costs of professional management.
  67. You overestimate the abilities of professional management.
  68. You spend too much for professional help.
  69. You don’t organize your finances.
  70. You don’t measure your progress.  [elaboration]
  71. You don’t compare your progress to a reasonable benchmark.  [elaboration]
  72. You don’t periodically rebalance your portfolio.
  73. You don’t know what to do when the market makes an unexpected move.
  74. You don’t know what to do you when your personal situation changes dramatically.
  75. You pay too much attention to the financial media.
  76. You pay too much attention to stuff that doesn’t matter.
  77. You overestimate the time required to manage your portfolio intelligently.  [elaboration]
  78. You overestimate the amount of expertise required to manage your portfolio intelligently.  [elaboration]
  79. You have no good source of unbiased, high quality, well-organized educational investment information, tailored to your knowledge level, circumstances, and learning abilities.
  80. You make investing decisions like a human.

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