You can save yourself a lot of money and aggravation if you can avoid some of the most common investing mistakes. Let’s review some of the biggest ones that many people make.
Emotional Investing
One of the most common mistakes in investing is to use emotions and not discipline when making investment decisions. Fear and greed are the main culprits here.
Fear causes people to sell at the bottom and greed causes people to buy at the top which the exact opposite of how to make money investing.
Logic and reason should be at the heart of all of your investment decisions.
When making a big investment decision, take a deep breath and examine your motivations. Be honest with yourself and take a measure of the role of emotions in your decision.
Chasing performance
Many people are prone to chasing the hottest stock or the hot fund. Just because a stock or a fund has had a good run recently it doesn’t mean the trend has to continue.
The most important thing about any investment is where it is going in the future, not where it has been in the past.
Stock funds that have just posted incredible results probably made a big bet on a stock or two and it paid off. Quite often their future performance reverts back to below average performance.
Gambling
Investing and gambling are two different things. Gambling relies on luck. Good investing relies on discipline and solid strategy.
Gambling in the financial markets takes many forms. Making a big bet on one hot stock is a form of gambling. You could win big, or you could lose big. Acting on stock tips is another form of gambling.
If you are exposing your assets to a big risk of loss, you are gambling.
Predicting the Near-Term Future
All investing requires some optimism about the future. I am extremely confident that the large cap US stock index funds will grow by 9% to 10% per year over the long term. This belief allows me to invest aggressively in those funds.
But I have no better idea than anyone else how the financial markets will perform in the next three months or six months. Lots of people make predictions about these things, but they are wrong most of the time. The short term moves of the financial markets are too hard to predict. There are just too many variables.
If you shift a lot of money into bank stocks, for example, because you think the financial sector is going to do very well over the next year, you are gambling. You might have a solid argument and good data to back up your beliefs but getting the exact timing right is almost impossible.
Using the Wrong Time Horizon
People should be measuring their investment performance over long periods of time – 10 years, 20 years, 30 years or more. As I just mentioned, anything can happen in the irrational financial market in 3-month, 6-month or 12-month time periods.
When you pay too much attention to short-term results, you are likely to change strategies too frequently. It can be another form of chasing performance and you are probably going to make changes that hurt your investment results.
Build an investment strategy that is positioned to win in the long-term and stick with it.
Investing is a long-term game and it requires discipline.
Happy Investing,
Phil
Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.
Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.
Updated: Feb 20, 2024
Yesterday, we discussed the urgent need for a way to protect your life savings from getting crushed in stock market collapses.
The investment services industry has nothing to help you with this challenge.
Trying some half-baked approach on your own will only lead to disaster. There are literally millions of those sad stories.
We all want Growth and Safety. We have been told we can’t have both – that you can either have an investment strategy built for Growth or one built for Safety. I simply couldn’t accept this. I thought we could use the markets irrational movements to our advantage.
I spent the better part of a decade using my “Mad Scientist” data skills working on a solution to this problem. It wasn’t easy. If it were, everyone would be doing it.
I toiled and toiled away at this thing until I had something that I could prove would work. I love this kind of challenge. It isn’t perfect, but it is better than anything I have seen or tried before. And perfect was not the goal, just better.
The hardest part was building in a mechanism to recognize when the computer model is wrong. This is what is missing form every other model that attempts to shift out of the stock market to avoid bear markets. The market can be fickle, so the computer models get “faked out” on occasion. To make this work, we needed a system that minimized the impact of these false alarms.
The systems used by the professional investors are based on rolling averages and they are not very accurate, and they are too slow to react when they are wrong.
I must admit that there were months of sleepless nights trying to figure out this challenge. I enjoy reading Ryan Holiday’s books and in THE OBSTACLE IS THE WAY he talks about how obstacles always break apart under relentless pressure. This powerful investing system is proof of that.
Yesterday, I mentioned that I would show you how the system performed in the 2022 and 2023 bear market. In the chart below, I compare the value of a portfolio using the Market Signals system to one using a Target Date fund (the Fidelity 2050 fund). The blue line is the Market Signals account, and the Target Date fund is the orange line.
Notice how the Target Date fund was down about 25% in October of 2022 while the Market Signals portfolio only dropped by 10% at its low point. The Market Signals account was back to even by early 2023 while the Target Date portfolio was still down 20% in August of 2023. The Market Signals account had grown by 10% by August of 2023.
The Market Signals account generated returns of roughly 30% higher than the Target Date portfolio over this time period.
The orange line in the graph is the "safe strategy" that was recommended to you by the professional advisors. How safe does it feel now?
And here is the hidden little secret about our Market Signals system. You will get higher returns and much more growth in your portfolio. When you lose less money when the stock market declines, you make more. It is simple math.
You need this kind of protection for your retirement account. You can get it by signing up for a Market Signals subscription. Click here to learn more and to sign up today.
And Market Signals comes with a 100% Satisfaction Guarantee. Because I am so confident that this system will improve your investing results and protect your savings, you can cancel at any time for any reason. No questions. No hassle.
Click here to sign up now.
Happy Investing,
Phil
Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.
Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.
Do you have a proven investing strategy in place to protect your life savings from another stock market meltdown?
Or are you just going to Buy & Hold & Suffer? Or are you just doing to “wing it” and try to adjust your investments on your own?
The investment services industry and all the professional advisors have let everyone down with their lack of solutions to the “safety” issue. I’ve often discussed how their Asset Allocation strategy only smooths out your returns by limiting your gains in up markets. It does not do a good job of protecting your money in bear markets. Look no further than 2022.
You don’t want to make emotional decisions when the market swings wildly over short periods of time. Many people panic and sell their stocks at the bottom and then buy back in at the top. This guarantees that you will absorb even bigger losses.
Stock market volatility causes many people to just stay out of the market. But this leads to really low investment returns (3% to 4%) and not enough money to retire comfortably.
Fear leads to the biggest investing mistakes that people make.
I get it. Dealing with the irrational cycles of the stock market is very hard. That is why I created the Market Signals system. The industry just did not have a good solution to this problem of keeping your money safe in difficult markets.
We all want Growth and Safety. We have been told we can’t have both – that you can either have an investment strategy built for Growth or one built for Safety. I simply couldn’t accept this. I thought we could use the markets irrational movements to our advantage.
We know that we will see market corrections (drops of 10%) every other year on average and bear market declines (drops of 20% or more) about once every six years.
We also know that the market always rebounds from both corrections and bear market collapses. Sometimes it can take a long time for the recovery (four plus years) but it always recovers.
The market is also trending higher about 85% of the time. In these rising markets, we see average annual gains of 15%. So, you want to be fully invested in the stock market most of the time to capture these excellent returns.
Bear market crashes only represent about 15% of market cycles. But they are extremely painful. Prices drop at an annual rate of 39% in bear markets. Avoiding that financial and emotional pain should be a priority. The problem is that nobody knows when they will appear and why they will appear. The “talking heads” are always wrong with their market predictions.
I spent the better part of a decade using my “Mad Scientist” data skills to create the computer models that drive my Market Signals system. The only reliable solution to the safety problem is a disciplined and data-driven approach that takes emotion out of the equation.
Market Signals does not predict when crashes will occur. It simply kicks into gear after they have started. We don’t attempt to “time the market.” We react to the market. Bear market declines last an average of eleven months. We use a probability-based risk system to indicate when to get out of the market and we use a different set of algorithms to tell us when to get back into the market.
We alert our customers to get out before most of the damage is done and when to get back into the stock market when the coast is clear.
Most of the time, we are “all in” on the market to capture the large long-term gains of the stock market.
In tomorrow’s post, I’ll show you exactly what happened in 2022 and 2023 for our customers using the Market Signals system.
The system is fully explained in my book, FIX YOUR 401K, which is available on this website and on Amazon. You can also learn more about Market Signals on this website.
Happy Investing,
Phil
Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.
Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.
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