Great articles on investor behavior never get old! Carl Richards discusses the seemingly intractable problem in the New York Times. His first prescription is to notice the behavior in ourselves-always good advice.
When it comes to investing, the tendency to behave badly is not going away.
So what do we do about it?
1. Admit it. Like any destructive behavior that first step to fixing it is to admit that there is a problem in the first place. Being honest with yourself and reviewing past decisions will help:
- Did you get caught up in the tech bubble in 1999?
- Real estate in 2006?
- Did you sell in 2002, late 2007, or early 2008?
The reality is that most of the money is made during the implementation and execution of a systematic plan to exploit a known return factor like relative strength. Finding the return factor is just the first step. Execution is what is crucial-and key to good execution is not letting one’s emotions undermine the whole enterprise.
