Lies Investors Tell Themselves

“The reason I talk to myself is because I’m the only one whose answers I accept.” – George Carlin

Hedge Fund manager Dan Loeb had this to say about a recent two month stretch of terrible performance (via Business Insider):

…there’s just an incredible amount of uncertainty in the country both in regards to the political situation and corporate governance. There’s also a great deal of uncertainty about big M&A deals getting done. Regulatory uncertainty “will be a wet blanket on top of investors until transparency and a level playing field are restored in the markets.”

It’s funny how regulatory uncertainty seems to be highly correlated with poor performance in the minds of portfolio managers.

I’m not trying to single out Loeb here. The guy is a very accomplished investor. But his statement just shows that even some of the most well-known investors lie to themselves instead of admitting they just had a period of poor performance or were simply unlucky.

It’s something all investors do. It’s a coping mechanism to deal with the inherent complexity of the markets. And with the benefit of perfect hindsight, we can craft a reasonable explanation for every past move.

Here are some other lies that investors tell themselves on a consistent basis, including many I’ve told myself over the years:

If only I would have taken my own advice…

I’m not wrong, the market is. You’ll see.

Investing is easy.

I can predict when the next correction is coming.

I’ll be greedy when others are fearful.

I have an accurate discounted cash flow model that tells me exactly what this company is worth.

I know everything there is to know about the markets.

I’ll invest when there’s more certainty in the economy.

If the politicians would just get their act together the markets would take off.

I can time the tops and bottoms in the markets.

I never make emotional decisions.

I’ll buy hand over fist the next time the market crashes.

I can predict where the markets are going next.

I know exactly what my investment returns are.

If I just try harder, my performance will improve.

I knew I should have sold that stock before the latest earnings release.

If only I would have bought Apple at $10 a share.

I know where interest rates are going.

I have a process in place to consistently pick the best up-and-coming fund managers.

High frequency traders are killing my trading system.

I have a fool-proof system.

Don’t worry, I can ignore the noise.

I know exactly what Tim Cook should do with Apple’s stockpile of cash.

I blame the Fed for my poor performance.

My returns are always in the top quartile.

I’m never wrong.

I have a good handle on my tolerance for risk.

My risk tolerance doesn’t change based on changes in the market.

My strategy works well in every market environment.

I’m intelligent, so I can just out-think the market.

I’ll start saving more money for retirement in the future.

In Two Paragraphs, Dan Loeb Perfectly Sums Up Why October Has Been A Nightmare For Hedge Funds (Business Insider)

Further Reading:
Excuses for underperforming the market

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What's been said:

Discussions found on the web
  1. maria commented on Oct 22

    Good to know that in this case I’m on the same level as Hedge Fund managers. Thanks for holding up the mirror. 🙂

    • Ben commented on Oct 22

      HF mngs are just people with a few more zeros in their account balances.

  2. Market Pulse and Income Ideas | Prudent Trader commented on Oct 23

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  4. Alain commented on Oct 23

    One I have seen with increasing frequency recently something along those lines: “X is down because it was a crowded Hedge Fund trade who all sold because X happen which wasn’t why we invested in the first place. We believe that our investment thesis is still valid”

    • Ben commented on Oct 23

      Yes, good one. I hear that a lot too. Of course you still think your thesis is valid if you still hold the position. Along the same lines – ‘They’re throwing the baby out with the bathwater. We think this is overdone’

  5. Whammer commented on Oct 23

    “I’ll be greedy when others are fearful” — heck I blew that one last week! The problem is that when everybody else is fearful, it’s genuinely hard to be brave.

    • Ben commented on Oct 23

      It’s true. It’s much easier to say it than actually do it. This is why automating good decisions is the best route for most investors. Make the choices ahead of time so you don’t have to think about it.

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  7. David Kessler commented on Oct 24

    “I can just put all my money in this index fund and leave it alone for 30 years”

    • Ben commented on Oct 24

      Good one. Funny how these things always sound easy in theory but never work in real life.

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