The investment stories we tell ourselves

Investors love to find reasons for why their stocks have gone up and down. Reasons are what help us make sense of our investment returns and help us to feel in control. For it is all a bit scary without control.

The truth of that matter is that we have very little control over how assets will perform. It is all a trick we play on ourselves. A dangerous trick in fact.

For when we allocate reasons to trends in the market, when we feel we have control, we take greater chances with our investing. Because we feel in control, our behaviour becomes more confident. We become bigger risk takers.

There’s two problems with this line of reasoning.

1/. It’s too hard to pinpoint just one reason stocks perform the way they do

There are often multiple reasons for why your assets are going up or down in price. To put it down to one reason is often not reflective of the actual situation.

Your reason could be due to your own biases, knowledge, and blind spots, which could be completely different to someone else’s reasons. Both equally valid.

In other words, there are often reasons that you haven’t even considered through your own narrow lens.

2/. It’s easy to conjure reasons for a stocks performance when looking backwards

“I didn’t feel that strongly about that stock anyway”. “I did think that would happen all along. I knew I should have done what I thought would happen”.

We tell stories to ourselves to make us feel better about not seeing something coming. By doing so, we regain an imaginary sense of control in our investment decisions.

The economy and growth assets such as housing and stocks are unpredictable by nature. If you choose to make the unpredictable predictable, you are opening yourself up to risky investment practices, sub par returns, and losses beyond that you can handle.

Final thoughts

The best thing you can do is admit you are at the mercy of the markets and you don’t know what is going to happen with the markets and economy in the future. You may think you know, but you don’t know for sure. But you will sure as hell convince yourself that you knew all along after the fact.

Investing based on your goals and investment timeframe in a wide range of asset classes, regions, sectors, and industries, will see you far more likely to weather any storm and stay the course. Not timing the market and thinking you are an investment picking guru will get you very far indeed.

If you need an investment plan or recommendations , then get in touch today.

The information contained on this site is the opinion of the individual author(s) based on their personal opinions, observation, research, and years of experience. The information offered by this website is general education only and is not meant to be taken as individualised financial advice, legal advice, tax advice, or any other kind of advice. You can read more of my disclaimer here