Written by Preet Banerjee
Thursday, May 6th, 2021
It can be easy to see how the depictions in movies and TV shows of people sitting in front of multiple monitors of stock market data makes it seem like investing has to be a high-adrenalin, time-intensive endeavor.
I love the show Billions, which glorifies and villainizes an investment firm's mission to get better returns at any cost. It has a lot of drama and fast-paced action. That's good entertainment.
But investing in the real world doesn't have to be complicated to be successful. And actually, the less drama there is in your approach, the more successful you can be.
Keeping Your Cool When Investing
In a very famous academic paper titled Trading is Hazardous To Your Wealth, the authors noted that the more people traded stocks, the lower their returns were. When investors were divided into groups based on the frequency of their trading activity, the most actively trading investors (the top 20% of the investors analyzed based on volume of trading) underperformed their benchmark by just over 10% annually.
The Seduction of Trading Stocks
The idea of actively trading in markets or trying to outsmart other investors is seductive. It's in our DNA to compete, and it's glorified by Hollywood. This has also taken on a new dimension with investment forums doubling as support groups such as r/WallStreetBets (of GameStop and other "meme stock" fame). But take note of the name of the sub-reddit: it includes the word "bets". They preach highly speculative investment strategies that can leave investors ruined just as much, if not more, than the wins that draw our attention in the press. Members can even receive a tremendous amount of upvotes when posting their losses.
Gambling or speculating with stocks can be "fun" in the same way that people can have fun going to a casino on occasion. But most of us are quite familiar with the idea that "the house always wins" when it comes to casinos. Many people implicitly accept that it's a form of entertainment that costs us money on average. But the goal of proper investing is not the same. You might even want it to be a bit boring, really.
Uncomplicate Your Investments with Portfolio Funds
Disciplined investing in the stock and bond markets doesn't require devoting your evenings and weekends to pouring over financial statements. A popular option is to use what are called portfolio funds. Portfolio funds handle all the work of creating and maintaining a portfolio that is designed for long-term investing. For the most part, there are really only three things for portfolio fund investors to do:
1) Pick a portfolio with the appropriate level of risk for you and your goals
2) Add money
3) Stick to the plan
Portfolio funds take care of the underlying investment selection, diversification of the portfolio, and rebalancing to keep the risk and return profile in line over time. While they may not be sexy, they get the job done.
Uncomplicated and boring can be a great way to get good returns over time without taking up a lot of your time. And that's a great way to be a successful investor.