As I am writing this article, I am really wondering: what makes YOU think you are better than the market? Or better than a financial advisor/broker? Is it because of the fees they charge? Is it because you think you can time the market? Or do you simply believe that ETF investing or Dividend Investing are better strategies that will always outperform the market? I want to know your reason… as I am in the same boat 😉
In my day job as a financial planner, I encounter a lot of people who wish to manage their own money. They don’t necessarily have a strong background with investments but they want to manage their portfolio. Some of them are pretty successful while others…well… you know… lose a lot of money and stay in denial…
Denial, Denial, Denial
If you speak to anyone trading in their account, I swear that 90% of them will tell you about their best trading move. They will tell you how they made their smartest move, how much they make or what return they made that year on their investment statement.
However, it is pretty rare to speak with people telling you how much they lost in 2008 (I was -27% for the record 😉 ). Why? Simply because inside of us, we are a bit too proud and we don’t want to admit that we make bad trading moves. Therefore, we convince ourselves and convince others that we can do better than a financial advisor or the stock market. I actually looked at my track record for the past 5 years only and I am not doing better than most growth mutual funds…
Bad reputation
Another reason could be the very poor reputation some financial advisors have. They are sometimes seen as car salesmen or worse, mechanics. No offense to these 2 professions but we must all admit that these are among the people who are least trusted (and maybe, I should add politicians to the list!).
There is a great difference between selling something to someone and advising someone. Unfortunately, commission structures push advisors to become more salesmen than advisors… However, when you are able to find someone who will give you real advice and give your more information, I think you can be better off with this person than trading by yourself.
Over Confidence
I’ve discussed the 7 investors mistakes earlier on this blog and I was referring to pride and greed. This mix can easily lead to overconfidence. When you look at data or charts, it’s easy to say that you would have acted differently and that it was obvious that Apple was going to be a stock market darling for 2 -3 years. A single investment in this stock a few years ago could have saved your whole portfolio!
However, reality is far from it. While it’s easier to “second guess” when we have the answer in front of us, it is much harder to predict the next good trade to make. If you had to do it this morning, I bet you that more than 75% of us will be wrong… that’s part of the game!
How to escape these patterns
Over the years, I have decided to become a much more disciplined investor and invest according to specific rules. I want to take fewer gambles (such as the one I took on RIM back in 2009!). I am pretty happy with this year’s pick as they represent solid investments:
Husky Energy – HSE: +0.2% with a 4.30% dividend yield (according to my purchase price)
Chevron – CVX: +11.87% with a 3.36% dividend yield
Johnson & Johnson – JNJ: +2.24% with a 3.51%
ScotiaBank – BNS: -2.93% with a 3.45% dividend yield
Overall, my investment return is good with these 4 trades and the dividend yield is pretty strong too. Unfortunately, I am still carrying a few gambles from my past investor life (look at my dividend holdings to see what I mean 😉 ).
What about you: why do you think you are such a good investor?