Introduction
The Two Most Common Investment Mistakes...
You're Probably Making Them Right Now!
How Market Skepticism Improved
the Way We Handle Financial Planning.
Being cautious with investments is not a bad trait, but extreme skepticism can lead to missed opportunities. In realizing this, Investor Resources took a long look at the investing habits of our clients and others, as well as our own investment processes. Through this investigation, we discovered something that would help us improve our services and client portfolio performance. We learned two very important lessons that fundamentally altered our viewpoint both as investors and as financial planners.
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Emotions Lead us to make mistakes
Investments made based on emotions can be risky at best, and the more powerful the emotion, the greater the chance of making a costly mistake. For example, when stock prices soar for extended periods caution gives way to overconfidence and greed. When stocks plummet, we experience denial and concern leading to despair and fear. These emotional reactions cause us to make irrational and costly mistakes like chasing after last year’s hottest asset class, buying overpriced assets while ignoring under priced investments, turning over our holdings excessively, and/or buying a fund based entirely on its star rating.
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A Typical Investor's Investment
Decision Process
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An Institutional Investment
Decision Process
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Comparison between how institutions make buying decisions and how the typical investor makes decisions driven by emotions rather than sound planning. Whether you get a hot stock tip or have concerns with an existing investment, here is how this cycle of emotion causes many to make poor choices and how the institutional investors are taking advantage of it.
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Information alone doesn't cut it
As members of the financial industry, we’ve been able to get our hands on a huge amount of data and the latest technology, yet many portfolios still delivered sub-par performance. Why? The traditional “Buy & Hold” method of investing limited our ability to adjust a portfolio while the market was down, which compromised performance. The lesson we learned is that information and good intentions are not enough by themselves to generate consistent investment success. Therefore, investors must arm themselves with the capability to “Buy, Review & Update” their investment portfolios based on current market themes, conditions, and environment.
