Trying to be a good investor can work. Trying to become a “perfect” investor, however, always seeking the “best” investments can backfire. “Perfect” investments are a mirage, an illusion…they don’t actually exist except for a moment in time within our psyche. Constantly trying to maximize returns, investment by investment, often leads to financial failure.
Remember the last NFL team to have a perfect (undefeated) record? Well, you have to have a little age to remember, it was the 1972 Miami Dolphins. That’s right, 43 years have passed and literally thousands of NFL games have been played since a single team went through an entire season with a perfect record.
In the early part of every year, financial publications rush to publish their list of the “best” mutual funds or other investments from the previous year. In many if not most cases, these funds are “one hit wonders” that happen to find luck one year but can’t repeat the performance the next year. Most of these funds on the “best list” only hold a few dozen stocks. If they hit a winner or two, the performance (for the short term) can appear staggering. This cycle repeats itself year after year.
In 2014, perhaps the “perfect” investment was large U.S. growth stocks. Many of these stocks posted double digit returns for the year while small U.S. stocks and international stocks had far less impressive returns. Does this mean you should abandon everything except large U.S. stocks? Hardly. Over longer, more meaningful timeframes (remember you are investing for something in the future), smaller stocks have fared much better. What specific asset category is the “best” in a single year, or even a few years at a time does not alter this truth.
Develop a long term investing strategy and then stay with it. Ready for a real conversation?