Walt Kelly was an American cartoonist who wrote the strip Pogo for nearly 25 years. He died in 1973.
Many are familiar with the Earth Day 1971 pronunciation in respect to the decline in the character’s local environment..
“We have met the enemy and he is us.”
We are often our own enemy and that characteristic is more commonly found with investors.
A perfect investor is knowledgeable, wise, curious, experienced, objective, disciplined and patient. There may be some among us who are these but they are few. Most people are fearful yet overconfident, biased yet objective within their bias, ego versus humility, greedy, impatient, time incompetent and ignorant of important information.
Most failings are clearly observable from history, but the combination of ignorance and overconfidence seems to deny access to the lessons. It is little wonder that few individuals can claim a long term track record that does better than the market as a whole. Perhaps a low fee index fund would solve their needs better.
Well, once they get by the greedy part and how easy it is to make money in the market.
Blackrock studied results for the 20 years ended in 2013 and concluded that, “The typical individual investor has done shockingly badly.”
It is not for want of desire or need. Even time and money is no impediment to failure. People regularly study, invest in information and assess their choices. It mostly does not matter. We all hold beliefs that work against our success as investors.
How do you handle decisions. You will have many so they must be well made. A common decision is keep or sell a losing position. There is an easy analysis for this. Ask, “Knowing what I know of this stock, if I had the money I could sell it for instead of the stock, would I use that money to buy it?”
The analysis to keep is identical to the analysis to buy. In either case, you are making a choice to own the money or own the stock. Only the order of events is different. Despite the obvious ease of this choice many are confounded. Why? Because they cannot tolerate losses. It is a self image thing. Ego. If you keep your losers with the hope of recovery, and take small profits because they feel good, the part of your portfolio that contains older positions will eventually be only losers.
Objectivity requires notice of the fact that how you came to the position is not a relevant fact in respect to what you should do next. The past can provide information but not a mandate.
Perhaps invoking the Man From Mars will help. This person is unaware of our customs and history. Everything is either the present or the future. How it came to be is outside his briefing material. His future is not conditioned by the past because he knows nothing of it. Objective.
Some times invoking a third person adds clarity. What would Jesus do? What would Machiavelli do? What would Warren Buffett do? What would the Man From Mars do?
What would I do? usually adds no perspective.
Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.