Why investors keep making the same mistakes over and over again

Complacency and overconfidence are the two great enemies of proper investing.

There’s a story that a trainer in Penang asked a room full of investors whether all of them lost money in Money games.

‘Yes!’, all of them answered.

‘Would you want to put your money in it again?’, the trainer asked.

‘Yes!’, came the enthusiastic reply.

Confused, the trainer asked, ‘Why? You already lost money, why want to lose again?’

The crowd answered, ‘This time we will be the early bird to exit with profit!’

We all know we all can’t be the first to exit, then who will be the last? But complacency and overconfidence gives us the confidence to do things believing we know better.

There was a fund manager who believes strongly against asset allocation. ‘If you did fundamental and technical analysis and found an undervalued stock, shouldn’t you invest all in on it?’

‘The problem with most investors is that they over trade, lose out on transaction fees. Or they diversify, lacking conviction. Insurance savings plan, unit trust investments, are investments lacking in conviction, getting average result by paying a heavy fee to the managers. There are model stocks and investors out there where a novice investor can just copy the stock purchase. Buy and hold. ‘

These are all valid points. But I pointed out, ‘Even Warren Buffett advocate an average investor to buy the index, not direct stock purchase. And the index stocks since the start of the Dow Jones isn’t the same as it is now. Companies come and go. ‘

The problem is not that there are no tools or systems for people to follow. The problem is everyone believes themselves to be above-average. When everyone is ‘above’ average, complacency and overconfidence comes in. Which is why there is Warren Buffett’s famous quote that temperament is a better indicator of a successful investor than intelligence.

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