10 Things You Shouldn’t Care About as an InvestorPrashant Vaishampayan
Ben Carlson writes that it is more important than ever to filter out the stuff you shouldn’t care about as an investor. Here are 10 things that fit the bill:
- How rich other people are getting. John Pierpont Morgan is attributed with the quote, “Nothing so undermines your financial judgement as of the sight of your neighbour getting rich.” There will always be people with more success, prestige, money and accolades than you. Easier said than done but not worrying about how much money other people are making can save you a lot of unnecessary stress and angst.
- What you paid for an investment. Picking stocks is harder than you think. Buy and hold is a terrific strategy for some stocks. For others, it’s the equivalent of an investor death sentence. I’ll just wait until I break even is a tough place to be as an investor because some stocks don’t come back…ever. There’s a fine line between being disciplined and being stubborn when it comes to investing.
- The amount of time and effort you put into your investments. In many areas of life, trying harder leads to better results. That’s not the case when it comes to investing. In fact, trying harder and paying more attention to your investments will often lead to worse results. There are no extra points for the degree of difficulty when it comes to the markets. Most investors would be better served doing less, not more.
- One year performance numbers. One year (or any shorter time frame for that matter) returns don’t tell you anything about yourself as an investor. Every investor will have good years and bad years. Diversification often looks silly over the short term. Risk management can seem useless. Luck can trump skill. You’re probably not as good or as bad as your short-term performance numbers suggest. Long-term returns are the only ones that matter.
- Your IQ. EQ matters more than IQ when investing. Yes, some level of intelligence is required but once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing. There are plenty of intelligent people involved with the markets but not nearly as many who have control over their reactions. Intelligence alone does not guarantee success in the markets.
- Financial advice from billionaires. Ultra-successful people typically offer some of the worst financial advice. They’re simply too out of touch with normal people to provide useful advice. It’s also important to remember these people say stuff all the time that they don’t actually act on. You have to watch what they do, not what they say. And billionaires have the ability to make huge mistakes with their wealth and they’ll still be fine. If you make a huge mistake it’s going to hurt a lot more.
- How much you could have made if you would have only put $10k into… I hate these comparisons. These fantasies serve no purpose unless you know how to spot them ahead of time.
- Success in other areas of your life. Your biggest risk as an investor depends a lot on your personality, emotional make-up and station in life. The worst investors are often those who assume success in their career automatically translates to success investing in the markets. It doesn’t work like that.
- Timing the market perfectly. Investors waste far too much time trying to find the perfect entry point for their investments. That perfect entry point is only known with the benefit of hindsight. You’re far better off putting your money to work when you have some money to put to work and letting compound interest make up for any ill-timed purchases. It’s fun to look at returns from the tops and bottoms for certain markets or stocks but no one actually invests consistently at the peaks or troughs.
- Producing alpha in your portfolio. No one on their death bed has ever regretted the fact that they didn’t have a better Sharpe ratio (risk-adjusted returns). The whole point of investing in the first place is achieving your financial goals, not beating the market.