The best educator in any investment class, and probably the most expensive one, is the markets. The key to winning as an investor is to take up what you’ve learnt and improve on it for the next time so you don’t repeat your mistakes. This way you build yourself a framework for future decision making. Over the years this has been a common thread in my own investing activities, however I have been fortunate enough to learn not only from my own mistakes but from others as well. And I thought it time I shared some of them.
Don’t make investment decisions based on emotions
There is growing body of evidence to show that making financial decisions at emotional times brings about the worst investment decisions of all. It makes sense that when we are being highly emotional we let emotions like fear or anxiety or even greed dominate our rational thinking processes, and with that we tend to make decisions based on these emotions.
One of my favourite quotes is the following by Warren Buffet – undoubtedly one of the world’s most successful investors. It goes something like this:
“To have a successful investment experience, it doesn’t take a stratospheric IQ, unusual business insight or inside information. What’s needed is a strategically sound framework for making investment decisions and the ability to keep emotions from corroding that framework.” – The Intelligent Investor (Benjamin Graham)
There is a great deal of published informations in the area of the "moblike" behaviour of the markets. A certain event happens, and all as one, lots of people are gripped by the same emotion at the same time and behave in the same way. Whether driven by euphoria or fear the probability that everyone will make a wise decisions in their own best interests for their long term future under these circumstances seems highly improbable.
This is where I believe the role of the advisor comes into play and it is at times like this that a second opinion becomes most valuable. It is often said that we are our own worst mirrors because we don’t look at ourselves objectively. Even when we see ourselves as we are right in front of our own eyes, we either don’t believe what we see or worst still, kid ourselves that what we are seeing is something entirely different to what is there.
The reason an advisor can take a dispassionate view of our circumstances is because they don’t have the emotional baggage we have that influences our every decision. They don’t have the little voice in the back of their heads saying "Remember the last time this happened you lost big time so be careful!" or "I really have to make a fortune on this to prove to everyone that I am a financial genius!".
So if, right now, as you are reading this article you are finding yourself feeling a little anxious or worried about your own financial situation or your investments or the market in general, then this is exactly the time not to be making decisions on your own but having a chat with a good advisor.
Sitting down with someone who can take a look at your situation, examine your goals, understand what you are trying to achieve and help you map out a plan to get you there can be an extremely valuable and worthwhile experience. You must always remember you are under no obligation to accept that advice but it’s often easier to evaluate a viewpoint about something when you yourself are looking at it from an objective exterior viewpoint. It’s like sometimes working things out in your head can be very tricky but writing it down on a piece of paper or putting it up on a whiteboard helps you to see it better.
The other thing about advice is that it’s much better to make your mistakes on paper than in the real world. It costs a lot less.
Modelling possible different outcomes from various scenarios enables you to see what might happen if you took route B instead of route A and while there are no guarantees you can plug in to your different scenarios to let you see if doing something right now should always be better than doing nothing.
If you’d like to organise a Free Financial Health Check with me, I’d be more than happy to see you and have a chat. No charge, no obligation. You can book an appointment with me through Natalie by calling 1300 663 836 or email her at firstname.lastname@example.org and ask to book an appointment with me.
Until Next Month, Happy Investing, Merry Christmas and a Happy New Year to you and your family