The three biggest contributors to investor success

The biggest reason that individual investors don’t do as well as they should is emotion.  It makes sense to buy things that are cheap.  But falling prices make investors fearful and soaring prices make them greedy.  So there are three specific lessons to keep in mind to be a successful investor.

  1. Disregard short-term market and economic forecasts.  These have little or no value in predicting stock price moves.  In a study of economist’s forecasts in the Wall Street Journal from 1982 to 2013, the forecasts were wrong 63% of the time.
  2. Do not chase the latest hot-performing investments or try to time the market.  Too often investors jump on a bandwagon only to be disappointed when they find out that they have invested in a bubble.  Markets are cyclical and it’s often the under-performing assets that are the best value for the future.
  3. Invest systematically.  If you are investing for retirement, invest money in equal amounts at regular intervals.  Doing so, removes the emotion from investing.  It allows you to buy more when prices are low.  And it capitalizes on market volatility.

Never forget that stocks represent ownership interests in real businesses.  Whether you buy individual stocks or mutual funds you are buying parts of the worldwide economy.  And that’s a good thing.

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