Is it All in the Mind?

image003.jpg“People who read Cosmopolitan magazine are very different from those who do not.” so said Donald Berry in ‘Statistics’.

Now you will just not have any idea of how apt that statement is unless you’ve actually read Cosmopolitan (really read it, not just look at the pictures) but I like to believe that fund investors who read Mutual Fund Insight are very different from those who don’t. I have believed so far that there are two kinds of fund investors-thinking ones and non-thinking ones. And those who invest their time and money in reading this magazine must be the thinking ones.

What distinguishes the two? The non-thinking ones are the ones who just follow whatever seems to be the flavor of the day. The thinking ones are those who carefully weigh their options, consider the facts and then take rational decisions. However, in recent months I have seen that sometimes, the final step is the same.

The non-thinking ones unthinkingly follow the flavor of the day. The thinking ones think carefully, then just ignore the conclusions and follow the flavor of the day. They look at returns, ratings, portfolio statistics and whatnot, but then turn around and invest purely driven by the fear of getting left behind by everyone else.

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Non-thinking and non-knowledgeable investors have many reasons for investing. These are normally the ‘it’s available at par’ category of reasons that even a mildly knowledgeable investor should just laugh at. But the funny thing is that knowledgeable investors are investing not for laughable reasons but for no reason at all.

I’d like to tell these people, forget about learning more about investing you probably know enough already. What you don’t know is about your own psychology as an investor. The fear of not doing what everyone else is doing coupled with high pressure marketing appears to have overcome their rational thought. What is worse is that like all irrationality, this too seems to get drastically magnified by high stock prices.

All of which appears to be building up to a situation where investors will put in a lot of new money into mutual funds with expectations that are so high that they cannot be met.

The die is, well and truly, cast.

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2 Responses

  1. Amen… I agree with you 100% The “Lazy Mans” way to investing is a “laughing matter” when you consider that no body develops sound philosophy before investing in something as simple as a bank CD, not to mention Mutual Funds. I remember in the 90’s when everyone was talking about Janus, and buying because “everyone was talking about Janus”, LOL.

    Personally, I would never invest in something where the controls are out of my hands. I cant control the Manager, I cant control the CEO’s of the individual stocks. And I cant control the economy. Too many moving parts for my money. Especially since my housekeeper bought Janus too.

  2. Robin Bal says:

    Hi WealthBuilder,

    Thanks for your comment and visit to FW.

    Well that makes two of us, I wouldn’t invest where I don’t have the controls either. I remember about Janus too…lol.

    Take care and cheers.

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