I have four kids. If you didn’t know, that is a lot. Well, it feels like a lot. As such, we have rules to keep the horde in check. The rules are becoming ever more important as the horde realizes they outnumber us.
Why am I talking about rules? Rules have a duel benefit. At a fundamental level rules create order. Rules, in specific, also create habits.
In our house “bad words” are not permitted. You are all probably thinking about cuss words, but that isn’t my meaning. For instance, in our house “shut up” is the “sh” word.
“Your kids aren’t allowed to say, ‘shut up?’”
First, we noticed that saying shut up typically led to others yelling, “No, YOU shut up!” This led to screaming the phrase, then bodies start flying, and suddenly World War III had erupted in our living room. Disallowing two workds promoted peace and opened lines of communication (i.e. created order). Additionally, this created a habit (or my wife and I hope it creates the habit) of listening or, at a minimum, it eliminated a toxic environment.
Poor investing, for the common person, has often been traced back to behavior. People think there is a trick or secret to better returns. There is a secret. Shhhhh. Good investors have … good behaviors.
In my practice, asking “Scott, what is going to happen in the market?” is akin to being a drunken mouthy sailor … in church … during a funeral. Naughty, naughty. Why is that little question such a big deal? It leads investors to believing that I have any idea what is going to happen in the future. I don’t know what is happening in the next year, the next month, the next week, or the next 5 minutes for that matter. This bad habit (the belief that I can predict the future) can lead to unreasonable expectations which leads to bad habits like chasing returns.
A better question is, “Are our investments’ returns diversified?”
Define the rules by which you want to invest. You can’t plan an outcome. A good advisor will help you create rules for investing. The better your rules, the better your experience with investing is likely to be.