Bull & Baird: 7 Sins of Investing

When someone struggles with investing they quite often blame external factors. It’s common to hear things like “It’s not my fault; the stock didn’t do what I expected” or “this market makes no sense” or “things seem really bad right now.” 

No one likes to look in the mirror and admit they are their own worst enemy when it comes to money. 

I thought it would be informative to make a list of the 7 sins of investing – things people do that directly impact their odds of success. As you read the list ask yourself, “do I do this?” and if the answer is yes, you have something tangible to work on in the future.

Here they are in no particular order.

1. Allowing news to dominate your thinking. There is no news channel that will make you a better investor. A constant stream of negativity will almost certainly degrade your view of the world and directly impact your decision-making process. I believe the following: the more news you watch, the worse of an investor you’ll likely be. 
2. Believing that the world is getting worse. Very often#2 flows directly from #1, but it’s not always the case.  What is the case is that pessimism about the future can be extremely detrimental to investment returns. Nearly every successful investor believes that the world is a chaotic place, but that doesn’t stop them from investing in the world’s best companies and benefiting from the relentless march of humankind. At the core of every great investor sits an optimist about the future.  
3. Holding too many investments. “Simplicity is the ultimate sophistication” – Leonardo da Vinci. An overly complicated portfolio can make it very difficult to know what makes your account go up and down. Diversification is important, and the foundation of any durable portfolio, but too many moving parts can be harmful to your success because you lose sight of what actually makes you money.
4. Focusing on the wrong risks. Here are some common concerns I hear in the wealth management world: The national debt, elections, the dollar, foreign wars, Social Security running out of money, and AI taking all our jobs. While these are broadly important to the global economy, they aren’t what you should focus on day to day. Instead, you should focus on savings, spending, asset allocation, and health. Those are the things that affect your financial plan the most. Is the size of the national debt more important than getting daily exercise? No. One is a nebulous worry, the other directly impacts your life and how much money you’ll spend.
5. Using the wrong time horizon. Being impatient is an easy way to fail at investing. If your idea of investing in the stock market is something short like one year, I’m here to tell you anything can happen. Here were the range of outcomes for the S&P 500 over one calendar year (since 1928): -47% to +46.5%. That’s right, in one year the market can get cut in half. Investing in stocks is NOT a short-term thing. A good time horizon to maximize your odds of success probably starts around 10 years. It is a mistake to invest in long-term assets with a short-term mindset. 
6. Listening to the wrong people. A famous hedge fund manager appears on your favorite channel and calls the market a “bubble.” A newsletter writer says we are about to enter a new Great Depression. Your friend at the club says, “my FA is worried about stocks.”  Those statements should be taken with a grain of salt. Predicting the future is nearly impossible and none of them know your goals, your portfolio, or what makes you tick. Listen to people who know you and what your strategy is, like your FA.
7. Letting regret freeze you in place. “Money is less about math and more about emotion” – Carl Richards. If you made a mistake and exited the stock market because you were afraid of something, don’t let it compound by refusing to go back. Investing is an exercise in mistake management. Just like a golfer who ends up in the rough you have to take a penalty, reset your mind, and get back in the fairway. You can’t let regret ruin your financial future.

Remember, the hardest thing about investing is that you’re a human being full of emotions magnified by the world you live in. The good news is that these mistakes are not character flaws- they are habits you can recognize, manage, and improve over time.

Staying on the right path is about recognizing that even the smartest people need help. Intelligence isn’t the key to success in investing; it is managing behavior and that is best done with the help of a seasoned professional. 

The information reflected in this post is an opinion and subject to change. Past performance is not a guarantee of future results. Diversification does not ensure profit or protect against loss. All investments have some level of risk, and investors have different time horizons, goals and risk tolerances. Speak to your Baird Financial Advisor before making investment decisions.