As I am writing this article, I am really wondering: what makes YOU think you are better than the market? Or better than a financial advisor/broker? Is it because of the fees they charge? Is it because you think you can time the market? Or do you simply believe that ETF investing or Dividend Investing are better strategies that will always outperform the market? I want to know your reason… as I am in the same boat 😉
In my day job as a financial planner, I encounter a lot of people who wish to manage their own money. They don’t necessarily have a strong background with investments but they want to manage their portfolio. Some of them are pretty successful while others…well… you know… lose a lot of money and stay in denial…
Denial, Denial, Denial
If you speak to anyone trading in their account, I swear that 90% of them will tell you about their best trading move. They will tell you how they made their smartest move, how much they make or what return they made that year on their investment statement.
However, it is pretty rare to speak with people telling you how much they lost in 2008 (I was -27% for the record 😉 ). Why? Simply because inside of us, we are a bit too proud and we don’t want to admit that we make bad trading moves. Therefore, we convince ourselves and convince others that we can do better than a financial advisor or the stock market. I actually looked at my track record for the past 5 years only and I am not doing better than most growth mutual funds…
Bad reputation
Another reason could be the very poor reputation some financial advisors have. They are sometimes seen as car salesmen or worse, mechanics. No offense to these 2 professions but we must all admit that these are among the people who are least trusted (and maybe, I should add politicians to the list!).
There is a great difference between selling something to someone and advising someone. Unfortunately, commission structures push advisors to become more salesmen than advisors… However, when you are able to find someone who will give you real advice and give your more information, I think you can be better off with this person than trading by yourself.
Over Confidence
I’ve discussed the 7 investors mistakes earlier on this blog and I was referring to pride and greed. This mix can easily lead to overconfidence. When you look at data or charts, it’s easy to say that you would have acted differently and that it was obvious that Apple was going to be a stock market darling for 2 -3 years. A single investment in this stock a few years ago could have saved your whole portfolio!
However, reality is far from it. While it’s easier to “second guess” when we have the answer in front of us, it is much harder to predict the next good trade to make. If you had to do it this morning, I bet you that more than 75% of us will be wrong… that’s part of the game!
How to escape these patterns
Over the years, I have decided to become a much more disciplined investor and invest according to specific rules. I want to take fewer gambles (such as the one I took on RIM back in 2009!). I am pretty happy with this year’s pick as they represent solid investments:
Husky Energy – HSE: +0.2% with a 4.30% dividend yield (according to my purchase price)
Chevron – CVX: +11.87% with a 3.36% dividend yield
Johnson & Johnson – JNJ: +2.24% with a 3.51%
ScotiaBank – BNS: -2.93% with a 3.45% dividend yield
Overall, my investment return is good with these 4 trades and the dividend yield is pretty strong too. Unfortunately, I am still carrying a few gambles from my past investor life (look at my dividend holdings to see what I mean 😉 ).
What about you: why do you think you are such a good investor?
Just want to say that this was your best post in quite a while (not that they’ve been bad). It really made me think, and it will definitely start some good discussion. Thanks!
I do not consider myself to be an especially good investor, but I know enough for my own plans. I invest in the solid dividend stocks like KO, JNJ, P&G, MCD and IBM. I put about 15% of my money in slightly more risky purchases like Vale and BIP. I have the dividends reinvested. I usually wait to buy on dips but I don’t hold strongly to that. I know I can’t time the market.
I’m satisfied with that and I don’t want anything else right now. I don’t need to pay a financial adviser to do that for me.
I think a financial advisor is different than a stock broker type of person. A financial advisor can look after your estate, life insurance and many other things outside of investing per say. It can still be worthwhile even if you don’t invest with them.
When it comes to investing guidance, unless you have some really decent amount of money, the really good broker/advisor won’t work for you to be honest … I have found it challenging to find advisors that deal with stocks but since I am really interested in investing I did not venture too far in my search.
I am basically satisfied with my plan and I control my destiny.
My entry into the world of investing actually came from a desire to understand what I had in savings and why it was generating the return it did.
Since knowledge is everything to me, I started reading everything I could get my hands on.
I wouldn’t say I’m a good investor right now but I’m a more knowledgeable one than I was 6 months ago. I just don’t want to keep blaming someone else for not producing 4-5% return in my portfolio. If someone is going to get blamed from now on, it’s me 🙂
Like The Passive Income Earner said, we control our destiny. Getting good at it comes with time.
@Craig,
thx for your kind words, I’m always trying to write something good! To be honest, this post made me think about my own perception in regards to my personal finance. Being a financial planner myself, it’s kind of hard sometimes to make the difference between my job and managing my own stuff. I tend to take more risks because I am working in this industry.
@TimR,
I like the way you think; you seem humble and you will probably avoid most “investor traps” this way.
@Passive Income Earner,
You brought a good point: if you can’t invest significant amount (over 100K), good stock broker will not even set an appointment with you. I’ve seen several great stock brokers taking new account starting at 500K…
@Ben,
good luck with your investment journey! email me if you have any topics you want me to write about!
I believe that the best investors (long term) are always the ones who are humble. The real pros know that there will always be down years, and there are always things to learn from other people.
I’m still learning a lot as I continue to invest in the market, when I started 2 yrs ago I was so intimated. As I learn more I’m more willing to take risk, now here is my risk I purchased RIM 200 @ $66 and RIMM 300 @ $60.75. I have no idea what to do with, I’m considering selling it at a lost then perhaps buying it again on dips, or should I just cut my losses? The reason I ask is because you also hold RIM, and I was just wondering what you did with your shares. As for the post I consider myself to be an above average investor with a 11% return year to date.
@Stigma,
look at today’s post; I’m getting rid of RIM shares. I rather make 2 other plays and get my money back through other investments than patiently waiting for RIM…
good job on the +11%!
I’m -6.9% this year.. all thx to RIM!
I stick to ETFs, diversified into broad asset groups, as my core strategy, because I recognize I’m no better than the thousands of others trying to beat the market. I keep a little “fun money” around for individual stock picks.
I appreciate your candor about the conflicts of interest in the financial services industry. Most CFPs wouldn’t come right out and say this, but I’m glad you did.
I experienced this with my first investment and it’s the reason I have managed my own protfolio ever since. I know there are good planners, but there are also comission mongers as well. At this point, it’s easier for me to pick stocks than advisers.