The Top Ten (Part 10)

It’s a new year, and with that comes the inevitable resolutions. For 2011, I thought I would list my ten favorite resolutions for investors, from the bottom up.

Number ten is to check your ego at the door. The market doesn’t care about your ego. It doesn’t care who invented the internet. It doesn’t care whether your tie matches your shoes or not. The market is all about finding prices that balance buyers and sellers, and weighing the prospects for future returns. It has nothing to do with ego.

Of the many mistakes investors can make, hubris is one of the worst. Hubris comes up with an investment thesis and refuses to change it when circumstances change. Hubris insists that the buggy whip is coming back. Hubris demands that the stock or bond price meet your expectations, rather than the market’s expectations.

Successful investing has this paradox at the core: while you need to care about the market, the market doesn’t care about you. It’s like a one-sided relationship where one side is all take, take, take. Only, the market doesn’t just take. It gives financial return. It just doesn’t care who it gives it to.

If you don’t check your ego at the door you’re likely to make all kinds of mental errors. But the most common one is this: holding onto a position too long, unchanged and over-weighted. That stock doesn’t know you own it. By waiting too long, you add risk to your portfolio that, over time, doesn’t add to return.

There’s a saying that if you haven’t been humbled by the market, stick around. The best investors know this.

Douglas R. Tengdin, CFA
Chief Investment Officer
Hit reply if you have any questions—I read them all!

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