Can you identify the three things that lead to speculation in your portfolio?
18 Questions Blog Series
At von Borstel & Associates, we ask our clients 18 critical questions. The answers to these questions determine how we partner with each client and manage their wealth. This week we’re talking about three things that lead to speculation in your portfolio.
Follow along with us through the 18 Questions Blog Series. You may be surprised by what you discover about yourself and your financial plan!
#13 – Can You Identify the three things that lead to speculation in your portfolio?
Is speculation a good thing? I suppose if you have excess wealth and can afford to lose, why not take a chance? If you want excitement in your life and can easily cover potential loss, then that’s an option! However, if we are trying to build a stable plan that is somewhat predictable throughout retirement, I think speculating should be banned!
So many people rarely separate investing from speculation. If you’re speculating, you are gambling. If you are investing, you should be using academic truths that will likely lead to better results.
When dealing with the market, here are three “red flag” thoughts that lead to speculation.
- Picking
- Timing
- Outsmarting
No one knows what will happen in the market tomorrow.
Read that again – many people ignore this fact! The market is driven by thousands if not millions of factors each day. People invest billions of dollars through millions of transactions in the market. It is ludicrous to believe that you can pick a stock and accurately know what the CEO is thinking or what the board is contemplating. Not to mention the technological advancements other companies are making to compete. besides, even a great company can have things happen tomorrow that no one knows about today. Earthquakes, tidal waves, assassinations, war, technology – world events are unpredictable. For instance, just take the latest COVID pandemic! Thinking that we can accurately pick one stock with our limited knowledge is overly optimistic.
The dilemma with timing the market is that we get pulled into emotional decisions.
When things look positive, we want to invest. When it looks bad, we want to get out quickly (which is around the best time to buy). Without divine intervention, we will never hit exactly bottom or the top. Missing the peak costs thousands (if not millions) of dollars in a lost opportunity. Why do we think we have more information than people employing scores of researchers around the world? Historically even they cannot outperform the market. There is too much information and too many people involved to outsmart it.
We need to leave picking, timing, and outsmarting the market out of the process.
Let us embrace academics, and bring the probability of success into our investing. We want long-term success, not short-term gains. If every investor got an average market return, they would have a phenomenal experience. Speculation and emotional decisions seldom outperform the market itself. So embrace the market! Don’t try to outwit it. If you do…. It will beat you!
So, let’s eliminate gambling in your future.
Fact based portfolios are the answer!
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Investment advisory services offered through von Borstel & Associates, Inc., an SEC Registered Investment Advisor.
