Avoid these "self-inflicted" wounds
Based on responding to over 1,000 comments from Seeking Alpha subscribers
We’ve all likely heard that expression “you have 2 ears and one mouth, use them in that ratio.” That is, listen much more than you speak. I’m no stranger to both, if you have heard me as a podcast guest on Seeking Alpha’s Investing Experts, Money Life with Chuck Jaffe, Forbes or wherever else I happen to pop up. But since I started my post-investment advisor journey and transition into the research and model signal businesses, I have had a very fine learning and communication opportunity.
I recently wrote an article for Seeking Alpha which was part current market analysis and partly a summary of a pair of key “evergreen” conclusions about what I consider to be among the most self-inflicted wounds I’ve seen investors do to themselves over the past few decades.
Articles I write for Seeking Alpha (I’ve written hundreds over the past 2 years) are contained on that platform, which is subscriber-based and in my opinion, very affordable. That’s why we include a signup link to it on many of our posts. SA allows us to re-post up to 250 words (no graphics) on any article, and I thought this was important enough to put out to our subscribers here.
And while our normal publishing days are Tuesdays and Thursdays, when we have something we think will add value, we will. This is one of those times. Enjoy, and we’ll be back tomorrow with the Tuesday weekly post!
Past performance in investing is focused on misleading aspect of that performance
Market prices are a behavioral science of their own, and I think more investors should study it. Instead, many simply say "the market has always gone up, and it will go up in the future." That's very naive. "The stock market always goes up" ignores what’s occurred throughout market history and is more likely to occur going forward. It is as much an element of human behavior as anything else.
From 1999-2013, the S&P 500 went everywhere. After all that time, it averaged about 1% per year. The stock market is not what many think, and the potential range of possible outcomes is not limited to the ones we've seen. The S&P 500 has had many stretches of 10 years where it failed to produce more than a 6% annualized return.
2. Too much focus on "picks" over process
The most important part of any investor's genetic makeup should be the constant willingness and ability to adapt. Conditions don't stand still in the markets. As such, forecasting the future is fine, but investing rigidly based on that forecast is just plain dumb.
I think of every investment decision as being a trade-off between reward potential and potential for major loss. And, each security I own is part of a bigger puzzle. I'm not picking stocks or ETFs, I'm constructing a living, breathing portfolio of securities, that work together like a rowing team. Not like a tennis player.