March 24, 2014

Chasing performance is a really bad idea when investing your money. Why?

2 thoughts on “March 24, 2014”

  1. Garrett Haag says:

    If you chase performance you will run in to a few problems, some of these problems is having extra fees and commission if you keep moving your money around from place to place. A second problem you may run in to is getting caught up in a bubble, a bubble is when something had been going up due to speculation in the short turn due to over expectations, a third problem you may run into is picking something you think will pay off big and its a big bust and you end up making a lot less then you would have in index funds, and the last major problem is getting caught in a scam, such as a ponzi scam, if someone promises you a high return, dont trust them, if its to good to be true, it is.

  2. Mike Finley says:

    Well put, Garrett. Let’s review.

    When you chase after the hottest investment (recency bias) you are literally reaching for the rising comet (buying the latest 5 star mutual fund for example). Most of the big return on your investment is in the past, not in the future. That comet will at some point stop, and then head downward (reversion to the mean) toward where it should be once the speculative period has ended.

    How do you get those big returns? You must grab hold of that rocket before it takes off and that means you must be invested at all times waiting for the rocket to take off. NOBODY knows when that rocket will take off. Not you, not your local financial advisor, and certainly not some talking head on television. Ignore people who steer you toward the hot investment.

    Own a diversified collection of stocks and bonds over many countries and be patient. That rocket will take off at some point!

Leave a Reply

Your email address will not be published. Required fields are marked *

The Crazy Man in the Pink Wig