The Motley Fool

Why Being Honest With Yourself Makes You A Better Investor

It is simply human to mask our insecurities and flaws and to present our best side. Such behaviour is even more apparent – because of pride and ego – when we engage in competitive activities, such as investing. As a result, it’s common for us as investors to believe we know more than we do, and portray positive images of ourselves to friends and peers.

But it’s important to realise that we are fooling ourselves and harming our investment portfolio if we do not exhibit intellectual honesty, a trait where a person (in his own private confines), admits to his or her own knowledge-gaps, flaws, mistakes, and insecurities. This article discusses intellectual honesty and how the trait can help us become investors.

Admitting and documenting mistakes

The first benefit of being intellectually honest is the ability to recognize and admit our investment mistakes. Investors who constantly deny that anything is ever wrong with their portfolios would never learn from their mistakes and become better.

When we are honest with our own flaws and admit to making mistakes over time, we can learn to be better investors as we would be more mindful of past mistakes and seek to avoid repeating them.

Tabulating performance

Another advantage of being honest is being able to come clean on our investment portfolios’ actual performance. This is important because if we continue to deceive ourselves on performance, we may be lulled into a false sense of security that everything is fine. We then start to become complacent instead of continuously working to optimise our portfolio.

Some areas an intellectually honest investor should look at is the impact of fees and brokerage commissions on performance, and ensuring one uses the right formulae to measure returns. Being honest means including all gains as well as losses in the computation.

Mindset of continuous improvement

Finally, and most importantly, being honest fosters a culture of continuous improvement, whereby an investor would seek to improve one’s investment process over time. This mindset of always seeking improvement would help us stay grounded and humble, and opens up our minds to learn and become better investors.

It must be emphasized that as investors, we should always keep an open mind as uncertainties and probabilities are inherent in the investing process.

Click here now for your FREE subscription to Take Stock Singapore, The Motley Fool’s free investing newsletter. Written by David Kuo, Take Stock Singapore tells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead.  

The Motley Fool’s purpose is to help the world invest, better. Like us on Facebook  to keep up-to-date with our latest news and articles.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.