Why Do We Fail as an Investor?
I’ll start this post by admitting I have failed as an investor previously. I’m sure I will fail again in the future, but the difference is now I have a better coping mechanism when it comes to losses, especially unrealized losses. I guess I got better at managing my investment risks.
There was a time I focused solely on investment return. I either checked the past or the forecasted return before investing. Seduce me with the value of your returns and I’ll fall for it. Such a simple decision-making process.
Almost all my investments based on returns have either ended up as a loss or the returns were way below my expectations. A recent example is when I decided to buy a local airline stock after reading an analyst report being bullish of the company’s outlook.
I bought the stock at RM0.38 early last year expecting it to go higher. Unfortunately, the stock price has dived down to around RM0.16. That is a loss of around 58%. To make things worse, I did not have a plan or strategy on what to do next. Should I cut my losses, or should I buy more of the stocks since the price has dropped significantly?
I can easily blame the analyst report for his/her poor judgment, or I can blame the surging oil prices that may have increased the operation cost of the airline company. Why stop there when I can blame the weakening Ringgit (MYR) too. While I’m at it, let’s just blame the poor performance of the company’s management.
The truth is, I have nothing or no one to blame except myself. The only reason I got into this mess is that I didn’t have an investment strategy and focused solely on the forecasted return. I was gullible after reading the analyst forecast, invested my money without much consideration and totally ignored the fact there are too many external factors dictating the outcome of my investment. I simply paid more attention to outcomes that were out of my control and ignored those that were within my control.
Why do we fall sir? So that we can learn to pick ourselves up.Alfred Pennyworth – from the movie The Batman Begins
Personally, I appreciate every painful investment experience. How else will I learn about investing without the near misses, the poor judgment, the greed, the prayers, the hope, the fear of losing or the fear of missing out? For most of us, it’s the hope that kills us. Hoping for outcomes that are out of our control is just hopeless.
The solution; start focusing on activities that are within our control. To illustrate this, please refer to the below image designed by Vishal Khandelwal. Take your time to reflect and digest the message delivered in it. In my next blog post, I’ll share my brief thoughts on each item.
This is just one of many useful infographics designed by Vishal Khandelwal made available on his site Safal Niveshak – Wall of Ideas. A place where I learn investment wisdom from, not to mention those valuable witty tweets, they are just practical.
So why do we fail as an investor? It is simply because we do not have an investment strategy and spend too much energy focusing on returns alone. Start focusing on actions within our control and we will finally able to develop our own investment strategy. With a strategy, we will not only limit our investment failure but able to grow profit in the long run.
A part-time Malaysian blogger writing his thoughts online. Interest in both personal finance and economics, mainly the behavior aspect of them. I consider myself Poyo since I do not have any significant credentials in both fields, so readers beware. Thanks for reading.