I’m not a huge fan of New Year resolutions. Quite apart from the fact that most of them don’t last until the end of January, I consider the whole premise to be suspect.
I mean, if something is a good idea, and worth doing, why wait until New Year to start doing it? Why not start now?
But at least a New Year resolution does mark an actual — or intended — change. Because, as the saying goes, if you do what you always did, you’ll get what you always got.
Or, to make the same point another way, one definition of insanity is doing the same thing over and over again, and expecting different results — a remark variously attributed, as it happens, to Albert Einstein, Benjamin Franklin, Mark Twain, and Confucius.
Are these bad habits sapping your returns?
So might you be repeatedly making the same mistakes over and over again? Pursuing the same suboptimal strategies over and over again? Ignoring the same opportunities over and over again?
As I’ve pointed out before, the odds are good. Most of us have investing weaknesses.
Typical weaknesses? Buying shares on a whim, or ‘hot tip’. Selling too soon. Getting panicked by a falling market. Home-country bias. Bandwagon jumping. Gunning for yield, at any price. Loss aversion, and therefore not selling when you should.
And so on, and so on.
All of these traits will sap your wealth. And all of them are devilishly difficult to program out of your investing instincts.
So maybe a New Year’s resolution might help, after all. Here’s three.
Go further afield
Many investors, as I’ve remarked before, invest only in the UK. It’s what they ‘know’, they say. And the odds are good that you’re one of them: home-country bias is very, very common.
But the UK stock market is a tiny, tiny percentage of the world’s overall global equity markets — 4% or so. London might be the world’s third-largest stock market, but that 4% is sobering all the same.
Put another way, 96% of the word’s investing opportunities are somewhere other than where you’re investing.
And don’t underestimate the potential of those opportunities. In the past year, the FTSE 100 has gone precisely nowhere — or, to be exact, it’s gone down 0.5%. Meanwhile, America’s S&P 500 index — America’s 500 largest quoted companies, in other words — has gone up 21%.
Need I say more?
Tune out market noise
Another bad habit is panicked selling. It’s not so much the overall market falling: most investors of any experience know that if you wait long enough, it will go up again. It’s the fall in the share price of an individual company that is more pernicious, especially when sustained over some time.
People imagine that they’ve ‘bought a dud’, even in the absence of confirmatory negative news.
What they’re not understanding is that even if results are good, poor market sentiment can drive a share price down. And what they’re also not seeing is that sentiment can recover, and that share price falls can reverse.
Adverse market sentiment is surprisingly common, as the fortunes of individual companies’ market conditions and industry outlooks vary.
Here at The Motley Fool, we’re by inclination long-term investors. We try to tune out such market noise, focusing on real results and outcomes. It’s a good habit to acquire.
It’s time in the market that counts
We all know it. You’ve heard it countless times: you can’t time the market.
Meaning that it’s difficult for ordinary mortals — you and I, in other words — to successfully trade in and out of the market, and come out ahead of someone who just stayed in the market the whole time.
Studies show this. The difficulty? It’s not that it’s hard to spot either when the market has fallen, or when it is quite likely to do so. It’s that it’s difficult to spot when it’s about to turn upwards again — sometimes quite sharply.
After the 2007-2208 financial crash, for instance, we saw people still sitting on the sidelines in 2010. They were way, way too late — and most of them knew it, even if they weren’t admitting it.
Because the market had turned in early March 2009, reaching its nadir on March 4th, to be exact.
At the time, few would have recognised it as an obvious turning point. As the saying goes, no one rings a bell when the market turns. Riding the whole thing out (as I did) was the better strategy. Although — believe me — it felt uncomfortable at times.
Make the change
As I say, I’m not a huge fan of New Year resolutions. But equally, I’m not a fan of perpetuating poor practice. And it’s fairly clear that many investors could do better than they are currently doing.
None of these three resolutions are particularly difficult to enact.
And you could be reaping the benefits long after you’ve given up going to the gym, having that morning jog, and trying to regain that youthful slim figure.
