Common Mistakes Investors Should Avoid

Transcript

Ken Fisher:

So I'm pretty commonly asked what are a few things that people commonly get wrong about investing in the stock market? And, A) there's so many of them. Let me step back. And I addressed a lot of these in my only three questions book a long time ago. One of them is to believe that conventional wisdom about investing is correct. There's so many pieces of conventional wisdom about investing that are not correct, because the market is pretty efficient at pricing everything we know into securities now, including conventional wisdom. Wisdom could be, high valuations hurt the stock market. Probably false over any time period that any humans actually care about when they invest, which I documented in that same book. Could be, I gotta be smarter to win. Now, this is a smarter than what? I mean, the fact of the matter is, the market is really pretty smart, but a lot of the players that do best in it are not overly high IQ or as Warren Buffett famously said, temperament is more important than IQ. Why? Because the game is not beating others. The game is in minimizing your own mistakes. If you can minimize your own mistakes, you'll do better than others. That's one of the reasons why some people do well investing passively. Although most people really can't invest passively. They think they can, but then they buy high and sell low. Passive indexes. Real passivity requires stillness for a long, long, long periods of time, which is emotionally very tough to do in either terrifying or euphoric time periods. So with that, the notion that you should be smarter. There are some examples of people who have been breathtakingly smart who've done exceptionally well, but there's a lot more examples of people who are breathtakingly smart that were pretty sure they were and took all kinds of crazy actions and hurt themselves. And maybe they succeeded for a while before they hurt themselves. But Lucien Hooper, one of the longest running columnists in Forbes history, that was just finishing his career as I was starting it, starting my career. Said. And I loved it when he said it. He said, you usually make more money sitting on your hands than dancing on your feet. And yet, a lot of really smart people feel they need to keep dancing, as opposed to figure out what you got to do, do it, and then sit on your hands, which is self control. The most important part about investing is knowing yourself and self control. And that's hard because a lot of people don't know themselves, particularly. The more you don't know yourself, the harder it is to have self control. Then finally, I will just say that there's this process that goes on in cycle after cycle, and regardless of what category of investing we're talking in, where it's just very hard for people not to get sucked in by the mood of the moment. Now this seems like control, but it kind of is and it kind of isn't, in this way- A lot of market cycles in various categories can run two, three, four, five, six, seven, eight years. And to the extent that does, you come along kind of in the middle of the process just noticing it. And you say, well, I kind of missed my opportunity. It's been rising for three years now. It's probably gone on to too much, too high, too fast. But then it keeps going. And eventually your analysis tends to look for reasons that it's different and going to keep going on for a really long time, or that you'll be smart enough, going back to the prior point that I made, to figure out when to get in and when to get out. But most of that comes as a subset of what Sir John Templeton famously said are the four most dangerous words in investing. It's different this time. Now it always looks different, but it never really is. Psychologically, it never really is. The details always vary And so people will look for the excuses of why it's different this time, to justify an action that makes them feel like they can plow into something that may be more like dancing on your feet than sitting on your hands. And it's that part where our feelings take over and we think it's different this time. That's one of the biggest mistakes that investors ever make. Finally, a real simple rule, and I referenced this at the very beginning of this video is too many people don't predicate what they do on somehow, someway knowing something others don't know. You can't know all that much that others don't know. But the only basis in investment theory for making an investment that veers from passivity is to somehow, some way, know something other people don't know. What most people do is think they have a unique opinion about something. I have heard so many people say things like, and you can vary this by time period. It's got to be terrible because Joe Biden's president or Donald Trump's president. Which means, to a large extent, that they disagree with who the president is and what the president will do that they think. But how unique is your view about any president compared to the mass of the world that's looking at the president? I think it's virtually impossible to know anything about any president that other people don't already know. Haven't talked about and therefore isn't in the price of the securities before that person becomes president. If you follow the logic, this is do they use opinions versus knowing something other people don't know? It's it's very common for people to think their opinions are unique. It's very hard to have a unique opinion. So these that I've rattled off are just a few of things that people do that are common mistakes in investing. I hope you found this video useful. Thank you for listening and I hope you tune in another time for another video. Thanks. Hi, this is Ken Fisher. Subscribe to the Fisher Investment YouTube channel. If you like what you've seen. Click the bell to be notified as soon as we publish new videos.