Avoid your worst investment enemy

Do not let emotions cloud your decisions

Any number of factors can separate successful investors from unsuccessful investors. But, as one of the all-time great investors, Ben Graham, once said, “The investor’s chief problem – even his worst enemy – is likely to be himself.” And that is most likely to be the case absent of a sound investment philosophy with guiding principles and strict adherence to time-tested practices. Anything less is haphazard with a high degree of vulnerability to emotional and irrational decision-making based on short-term outcomes which can be devastating for long-term investment results.

It’s not at all uncommon for emotions to drive investment decisions and fear can be the hardest to ignore. But, that’s also the reason why it’s not uncommon for many investors to fall into investment traps that almost invariably lead to underperformance, or more tragically, unrecoverable losses in portfolio value. The behavioral influence on investment decisions is what typically leads to trying to chase performance, or time the markets, or buy the latest hot stock, or buy high and sell low – all of which invariably lead to underperformance, or worse, devastating losses.

The greatest value Winship provides our clients is to be their behavioral coach, helping them to avoid investing behaviors that can adversely impact their long-term investment performance.

Specifically, we can help them in Understanding Behavioral Influence on investment decisions encourage them to adopt Faith in the Future, Patience and Discipline as their guiding principles help them in Avoiding the Media Traps which can lure them into short-term, reactionary decision-making such as market-timing or chasing returns keep them focused on Managing Long-Term Risk to capture and maximize returns rather than trying to avoid short-term risk in order to avoid temporary losses

The key is in understanding both the external and internal influences on our behavior; knowing where the investment traps are; and then applying sound, proven investment principles and practices to avoid them in the future.