Back Off and Your Portfolio Will Thank You
I’m tooting my own horn a little bit in today’s “Slap in the Face” Award.
This segment goes out to small investors for all the usual reasons. But let’s get back to me for a moment…
I recently reviewed some of the major recommendations I made to my clients when I was working as a broker back in the ‘90s. These were large cap stocks and funds, and utilities.
Most of my clients were retired, so my advice to them back then wasn’t much different from what it is today: Buy investments of quality when they’re cheap and leave them alone.
Now, some of my clients didn’t follow my advice. But if they had, most would be well-off or very wealthy today.
One of the many reasons I left the brokerage business was that I got tired of clients who initially pleaded total ignorance about money, and six months later, wanted to calls all the shots.
I’m sure I don’t have to tell you how that worked out…
So, of course I chuckled when The Wall Street Journal ran the headline “Just How Dumb Are Investors?”
Well, to answer that question, let’s consider how well the little guy has done during the last 25 years.
On average, he’s earned about 3% in stocks. The S&P 500 has returned a little more than 11% during the same time frame, with dividends reinvested.
So how has the everyday investor managed to perform so poorly?
- Chasing last year’s returns.
- Buying high and selling low.
- Watching small movements in his portfolio too closely.
- Owning assets with far too much risk.
Buying based on the latest sensationalized story of a small cap stock that’s supposed to double in a month will get you into trouble. When the rumors don’t materialize, you wind up regretting it.
That’s not investing.
When you consider that 80% of active fund managers can’t beat the indexes, is it at all surprising that the little guy has continued to flounder?
My very simple advice is if your gut says cut and run, it’s time to buy!
If you can’t keep your finger from clicking on the “buy” button, then it’s probably time to sell.
An Oxford Club Member at a meeting many years ago said it best…
“Do all your due diligence, decide what you want to do, and then do the opposite.”
Oh, and resist the urge to be overactive – leave ‘em alone!