It Is often quoted that more is lost by indecision than by choosing to invest. I agree with that statement completely.
The uncertainty I am talking about is the what to invest in. Whilst indecision is a problem, so is investing with too much confidence.
I have invested money for over twenty years now. The biggest mistakes I have made all revolved around the investments I was convinced were perfect. Likewise, some of the best investments I have made were ones where I was uncertain.
There are many reasons why investing your own money can be hard, emotion being a key one. In my experience apart from emotion, bias is the main cause of bad investments.
Here are some comments I have heard too often in the last 12 months:
- I won’t invest in technology because I lost money in the Dot Com bubble and technology is just hype.
- In April this year a number of clients told me the property market would crash 20% or more because of the looming depression.
- I met a number of people who told me they sold out in August 2020 – because September/October are bad months for the market, and this year we have the US Election, Covid and the trade wars.
- In April/May this year I had conversation with a number of clients who I had to convince to stay invested. At the time they feared the markets were going to fall off a cliff and we were headed to a deep recession.
- After the fall in Feb/Mar/Apr this year some were quick to tell me that they knew the fall would happen and they have safely left their money in cash since 2008.
- Then there are the more common ones – my butcher told me about ABC, or my father in law knows a guy who told him XYZ is about to take off.
- I hear that Marijuana investments is the best way to make money.
The above are examples of conscious bias that people express. They affect your decisions because you only look for information that supports your view.
There are others that are sub conscious that you may not realise. You might have had a bad experience with a business, or you might have worked somewhere and believe you ‘know’ the business and have an inside running.
What I find is that when you are unsure, you will look equally for information and research on both the positive and negative of the opportunity.
When you are certain you ‘know’, the only information you take in is information that supports your theory. In an information age it is not hard to find evidence that supports what you believe, the internet is full of ‘experts’.
If you believe that technology is in a bubble, it is easy to find evidence to support your theory. But if you take time to question your beliefs you might see that a number of technology leaders are actually make money (as opposed to the Dot Com bubble) and are some of the highest surplus cashflow generating companies. Some even refer to technology companies as the new utilities as a result.
So when evaluating a decision it is always a good idea to challenge your beliefs. Even if you trade on your own – imagine you were presenting the trade idea to a boardroom. Do you have enough evidence and research on the investment to stand up to scrutiny? If you don’t, then you should not invest.
You can though take confidence that you don’t need to wait for the ‘perfect’ investment before investing your money. If you do the required research and you buy at the right price, most investments will work for you.
For more professional retirement planning advice, call 02 9634 6698 or book a free consultation online with our expert financial advisors at our office in Sydney's Norwest.
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