Investing and Emotions Don’t Mix
How to lose money? Being both excited or scared.
Emotions destroys more portfolios than the markets do. "For indeed, the investor’s chief problem – and even his worst enemy- is likely to be himself. (“The fault, dear investor, is not in our stars – and not in our stocks- but in ourselves…”) "– Benjamin Graham (father of modern investing).
The best performing mutual fund the first decade of this century was the GCM Focus Fund. It averaged 18.2% per growth during that time frame. Yet, the average investor that purchased the fund, LOST 11% annually – during that same time frame.
How Is This Possible?!
People invest in stocks or mutual fund when they have done well – when they are comfortable. However, they miss the growth that already happened. When stocks dip they panic at the loses and sell at the bottom. They lose what money they did make (if not more).
- How You Make Money When Investing: Buy Low, Sell High.
- How Do People Generally Invest: Buy High, Sell Low.
See the difference? How do we correct this?
An excerpt from the book, “The Obstacle is the Way” sums it up perfectly with this story:
“Coach Nick Saban, the head coach of the University of Alabama football team – perhaps the most dominant dynasty in the history of college football- doesn’t focus on what every other coach focuses on, or at least not the way they do. He teaches the process. “Don’t think about winning the SEC championship. Don’t think about the national championship. Think about what you needed to do in this drill, on this play, in this moment. That’s the process: let’s think about what we can do today, the task at hand.” – Saban
"In the chaos of sport, as in life, process provides us a way.”- Saban
Yes, I know. If you’re a college football fan you will probably have strong opinions about a Nick Saban quote here. But he is a man that has conquered emotional situations many times. How? With a process. With a plan.
You Should Treat Investing The Same Way, With A Plan
You are working with us, so you have a financial plan. You have a strategy. If the markets get scary, refer to you plan. Know your goals. Have a strategy. Have an approach ahead of time. Know when you’re going to sell an investment and why. Know when you need to get into the markets and why. These decisions can and will be uncomfortable-That’s okay. When you feel uncomfortable, refer to your plan.
One of the best ways to stick to a plan – use your accountability partner. We are here to help you through those emotional times! They can, will, and do come. It's inevitable. We have a disciplined strategy for investing your money. We do our best to protect you during emotion times.
Yet, we need your help!
- If you get scared of the markets – don’t do anything rash. Call us.
- If you feel a greedy need to get in a hot stock – don’t do anything rash. Call us.
- If you are having trouble sticking to the process – call us.
If you are not sure what your strategy is or how to stick to it, we are happy to build that and start it with you. Message us or call us if you want to discuss your process for conquering emotion.