All investors think they are better in their investing than the average investor…[and such] overconfidence can get you into trouble with your finances. It can cause you to take risks you shouldn’t, and to ignore information that disagrees with pre-existing biases. It’s tough to combat, because most overconfident people are also convinced they are not overconfident! Words: 507
…In the psychological community, it is a given that a patient must first be able to acknowledge a problem before he can be helped and guided toward solving that problem. A psychologist (I’m a retired clinical psychologist) cannot simply diagnose the problem, inform the patient of his diagnosis and cure the patient ipso facto. If the patient denies he has a problem, then there’s nothing to talk about. No matter how many hours a therapist might spend trying to have a patient see the light, no daylight can ever shine until the patient is ready to accept and acknowledge he in fact has a problem that needs resolution…
Main Drivers Of Average Returns
1. Over-reliance on Wall Street “wisdom.”
2. Gullibility leading to an acceptance of whatever the talking heads on T.V. are saying
3. Lack of confidence in one’s own ability to do research and analyze a situation.
4. Overconfidence in one’s position and unwillingness to examine a situation from another perspective.
5. Sticking to a long-held belief or strategy, even when the situation has changed and demands re-examination.
6. Unwillingness to adapt to changing economic circumstances.
7. Staying with the status quo, even when the market is handing you an opportunity.
8. Failing to recognize you must pay yourself first, transferring a set amount from a paycheck to savings or to an investment account to build a nice retirement nest egg.
9. Wasting too much time and energy trying to time the market. Building wealth is accomplished from buying and holding and monitoring investments, investing on a regular basis. Sitting on the sidelines too long yields nothing.
10. Dramatically underperforming the market averages by buying high, when excited by the market’s move higher, then selling low in fear, when the market sells off due to behavioral biases.
11. Living above your means, thereby depriving yourself of the firepower necessary to invest and grow your retirement account.
12. Failure to begin saving early, with a first job, in your early 20s, Failure to take advantage of a 401k savings plan at work, an employer match of free funds, or establishing an IRA account and making early deposits at the beginning of each and every year to take advantage of compounding from the first day of the year, onward.
13. Buying index funds at market highs, paying exorbitant amounts of management fees that eat into returns, then selling in fear at low market points.
Do you recognize yourself in any of these highlights, characteristic of investors who receive average or smaller returns? Please let us know in the comment section below. If you think of any others, please let us know that too.