by Jesse Anderson, CFA
Investors make the same mistakes over and over again. They are all well documented, but rarely do we try to recognize our errors, evaluate the decision making process, and finally, avoid the mistakes in the future. One of my favorite financial bloggers, Barry Ritholtz, recently wrote an article for The Washington Post listing Investors’ 10 Most Common Mistakes. Here are three and how we combat these mistakes with the Snider Investment Method.
You (and your behavior) are your own worst enemy
Emotions have been the downfall of many great investors and investment strategies. Barry says it best, “This typically manifests itself in two ways: by the buying of stocks at the highest valuations as excitement builds near the top of the cycle, and by panicked selling near the lows.” Our approach seeks to take the emotions out of investing. We use a checklist that reminds us of a systematic process for each trade. Any decision making, which is primarily impacted by our emotions is removed from the process.
Beyond the fact that emotions lead to poor investment decisions, we are also not trained to think correctly when it comes to investing. 100 years ago very few people were concerned or even considered investing. In the context of the entire human history, investing is a very young and new discipline. All we learned through hunting and gathering did not prepare us for successful stock selections. We’ve built our investment strategy on sound investment principles. We look at probabilities and set ourselves up to be successful in the highest probable outcomes. Unfortunately, there is no 100% success rate when it comes to investing. As a company, Snider Advisors also tries to provide the financial education necessary to overcome the natural, incorrect decision making processes inherent in the human psyche. Unlike 100 years ago, today everyone is required to think about investing and retirement. And, we want to be a part of creating success stories.
Not understanding the long cycle
Many investors listen or look for past performance and expect the exact same in the future. They also expect those exact same results month after month, year after year. In fact, past performance consists of both good periods and bad. They are likely to experience those same highs and lows over the long-run, but emotions drive us to abandon investments at the first sign of poor results. Investing for long periods, not just years, but decades will lead to success. With each new investment we make in the Snider Method we are willing to make a long-term commitment. Although our holding period can be as short as one month, we have many positions that span multiple years. We seek financially stable companies with the likelihood of being around for many years into the future.
Investing is not easy, and if it is fun, you’re probably doing it wrong. They don’t teach us about it in school or college, but we are expected to make the right decisions. Evolution has not prepared us for retirement or the choices we need to make leading up to it. We all need to evaluate our investment approaches as well as recognize how we can avoid making the same mistakes in the future.