Investing involves both financial and emotional decision-making, and can be tough especially when we are faced with setbacks or problems. While it is essential to stay calm and rational, saying is always easier than doing. Investors may find it a constant struggle to remain rational and alert to perform decently. However, there are three behaviours which I will list below which investors should studiously avoid if they hope to do reasonably well in terms of portfolio performance.
Comparing Performance With Other Investors
As the saying goes, there’s always someone out there who’s doing better than you. Endless comparisons against a group of friends or peers in terms of returns and performance would only demoralise and cause an investor to perform risky and reckless actions, harming his portfolio for the long-term.
In Singapore, where everyone constantly compares how expensive their houses, cars and possessions are, it can be tough to step back and avoid comparing one’s investment portfolio with others as well. However, it’s important to keep in mind that the only person you should compare with is yourself – have you been improving as an investor, and learning from past mistakes? That, to me, is the best way to improve oneself over time.
Comparing Against Benchmark or Index
On the topic of comparison, investors should not only avoid comparing their performance against others, but also against an index or benchmark. While it may seem tempting to know if you are beating the index or lagging it, ultimately, it makes no sense to compare constantly – unless you are obviously doing so badly, then you probably wouldn’t even need to compare anyway.
What’s more integral, in my view, is the ability to review whether your investment process has achieved your own personal returns target and fulfils your criteria for performance. As long as one is receiving a return above inflation and also meeting personal goals and achieving an absolute return (i.e. not losing money), one should feel satisfied. Endless comparison will affect one’s psychology negatively.
Gunning For Higher Returns (But Ignoring The Risks)
Many investors tend to chase performance and gun for higher returns. This is fine as long as one understands the risk-return trade-off and does his homework and due diligence before plunging in. However, as share prices rise, many will throw caution to the wind and start buying as they may be afraid of missing out on the rally. It may turn out that there was too much optimism in the first place, and that the risks outweigh the potential returns, causing the hapless investor to lose money.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.