- Should you put your money in a company just because you like the product?
- Should you buy companies with rising earnings?
- Should you trade in and out of stocks?
- What should you do if the market is "too high"?
- Should you be trying to beat the market at all? Is it not better to content yourself with whatever the market returns?
"According to the latest 2014 release of Dalbar's Quantitative Analysis of Investor Behavior (QAIB), the average investor in a blend of equities and fixed-income mutual funds has garnered only a 2.6% net annualized rate of return for the 10-year time period ending Dec. 31, 2013."The same average investor hasn't fared any better over longer time frames. The 20-year annualized return comes in at 2.5%, while the 30-year annualized rate is just 1.9%. Wow!"The average investor exclusively investing in just fixed-income funds has had an even worse experience. The annualized return is 0.6% over 10 years, 0.7% over 20 years, and 0.7% over 30 years."Investors may only have themselves to blame. According to Dalbar's QAIB, investors make poor investment choices that hurt their investment returns. These decisions, including when to buy and sell, are often driven by emotion."
- irrational investors frequently misprice stocks in an exploitable way; and
- investors using old-fashioned Graham-and-Dodd value investing techniques consistently beat the market in a way that is not attributable to luck.
"The report is not perfect. They exclude dividends, which is ridiculous. But even so, from September 2004 through July 31, 2014, the annualized return for Capital & Crisis were 16% over the last decade versus 4.8% for the S&P 500."I count dividends, so my figures are a touch higher – 17% for Capital & Crisis. But pretty close."
- Think a lot. Do a little.
- Always buy low. And for safe measure, buy very low.
- Never believe anything a salesman says about an investment. There's a good chance that he is ignorant, dishonest or stupid. Or all three.
- Be reasonable. But take a swing at a grand slam pitch from time to time. Heck, it's not just about the money; it should be fun, too.
- Remember, the investment world is like the rest of life. Patience, modesty and hard work pay off.