As much as I like investing, and finding great companies to invest in or recommend, it is not easy. At times, it seems like decades of experience means nothing, and the exact opposite of what you expect to occur happens. This of course adds to the challenge.
Many investors make mistakes, and we have discussed some of these common investor mistakes in prior columns. Today, we will look into a similar theme. Not specific mistakes,per se, but overall thought processes that get in the way of investment success. Let’s look at a few. These issues impact both individual investors and professional fund managers alike.
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The pressure to ‘do something’
This applies more to professional fund managers, who feel they have to justify their high investment management fees. But individual investors also feel pressure. This can occur in both good and bad markets. When markets decline, investors always think they need to do something to “protect” their portfolio. In good markets, investors are always fighting the “fear of missing out” and can sometimes adjust their portfolio (like selling bonds to buy tech stocks) which is not the right move for them. Doing nothing is often the best move in times of market stress. When I was a fund manager, though, if the market was down 10 per cent and a worried investor called me and asked what I was doing with my fund, the answer of “nothing” would basically ensure that investor would take their money out of the fund.