Investment Trap #6
Believing that this time is different.
In the late 1990’s, there was a single message ringing throughout the brokerage community. Financial advisors on every level told a compelling story of how the Internet was reshaping the future of business and investing. Technology stocks were turning 21 year old kids into millionaires. These can’t lose stocks provided huge returns over the previous five years. This was the time to get in.
Buying all blue chip stocks was another “sure thing” according to large financial institutions in the late 1990’s. Fortune 500 companies are big and stable and have performed well through the years. You can’t lose.
Convinced that these new paradigms would ensure financial success, many investors turned away from true broad-based diversification for narrowly cast portfolios in one or two asset categories.
But when those categories came down, as they always do, investors were shocked by massive losses.
To the astute investor, however, there would be no surprise. This pattern has repeated itself throughout history. From the Great Depression, to the Japanese market crash, to the dot-com bust – stocks that rise together, fall together.
A truly wise investor has a clear understanding of the nuts and bolts of investing, as well as the emotions and instincts that can sabotage the investing experience.
Remove the mystery surrounding the investment process by understanding the myths about investing.
Investment Trap #7 – The “I’ll stop when I get even” reflex.
