Jason Zweig posed a wonderful question earlier this week:
We gave some thoughts on our latest podcast:
We debated this one outside of the show as well and had a difficult time coming up with a concrete answer. It’s an unanswerable question but it’s not hard to come up with a list of traits the worst investors share.
In my book, I listed 7 of the biggest mistakes investors make as follows:
- Looking to get rich in a hurry
- Not having a plan in place
- Going with the herd instead of thinking for yourself
- Focusing exclusively on the short-term
- Focusing only on those areas that are completely out of your control
- Taking the markets personally
- Not admitting your limitations
There are plenty of additions we could make to this list but this is a pretty good start. But it’s not just making mistakes that can create terrible investors.
We all make mistakes and no one is right all the time. Being wrong is part of the investment process for everyone. What matters is how you deal with being wrong and making errors of judgment. The worst investors are those who never learn from their mistakes.
They move the goalposts when they’re wrong. They take credit for their wins and blame outside forces for their losses. They blame others for their own poor judgment. They chase fads. And they continuously make the same mistakes over and over again.
Everyone knows someone else they consider a horrible investor but no one ever thinks that about themselves. Yet the world is obviously full of poor investors.
The problem is there are no easy ways to spot the terrible investor within that we all live with because every one of us has our own investing demons.
We’re all fighting against our own version of our lesser selves and that can take different forms for different people. Unfortunately, it’s always going to be much easier to find faults in other investor actions than our own for the simple fact that it’s difficult to give an honest assessment of our own investment skills.
Many of us would like to believe we have at least a little bit of the world’s best investor in our DNA. That’s just not the case for the majority of the investing population. But we all have the world’s worst investor lurking somewhere inside just waiting to come out to take hold of the steering wheel at the worst possible moment.
Becoming one of the world’s best investors is a pipe dream but suppressing the world’s worst investor is something we can all strive for.
It’s far easier to emulate the world’s worst investors than it is to match the world’s best investors because mistakes compound against you much faster than successes.
Some more highlights from this week’s show including some thoughts on a do not disturb sign for your face, Ashton Kutcher’s new personal finance reality show, and taking financial advice from the uber-wealthy:
Now here’s what I’ve been reading lately:
- Frequently checking your kid’s grades is as bad as checking your portfolio (A Teachable Moment)
- Manager of Managers (Reformed Broker)
- Getting your cash back (Humble Dollar)
- America’s decade (Albert Bridge Capital)
- Realistic investment results (Dollars and Data)
- The squeal that set off the panic of 1907 (Novel Investor)
- The secret is now rented (The Ringer)