In this blog, we will delve deeper into the Wealth Management section of our Seasons FORMula.
In my experience, there are nine basic behavioral mistakes people make with their money when investing. Charlie Munger, the late business partner of Warren Buffett, once said about financial investment decisions that temperament to intellect is as 19 is to 1.
There are certainly more, but these are the most common investment mistakes I have found over the years:
- Panic
- Overconfidence
- Under Diversification
- Over Diversification
- Speculation/Trading
- Investing for yield instead of total return
- Leverage
- Using cost basis to determine asset allocation
- Using politics to make investment decisions
In future blogs, I will cover each of these nine mistakes, but there are two main points I want to make now.
First, behavior is so much more important than selection and timing. For most people to reach their goals, it’s crucial to decide to invest as an owner rather than a lender. Then you need to behave appropriately throughout all the fads and fears of a lifetime of investing. Consider, if you were investing for your retirement over the last 30 years, a mediocre small cap fund would have been far and away better than either a bond fund or a top-notch small cap fund that you got scared out of and sold.
Second, another aspect of successful investing is your outlook for the future. You wouldn’t be human if you didn’t feel rather pessimistic about all the problems we have today. Looking at history is extremely helpful. There will always be crisis in the world. Some of the past ones seem just as bad as today’s problems. It’s important to choose not to let your emotions dictate your investment decisions.
In my opinion, investing as an owner is key. Furthermore, practicing optimism as an owner is the best reality. This is the only world view that squares with the facts of history.
If you have any questions on this topic, please call the office to schedule a time to meet. We are here to help put all the pieces together!