The No. 1 Reason Investors Fail
And How the 10X Switch Can Help
Over the years, one study after another has shown that the average investor underperforms the broader market.
That’s why Warren Buffett is so adamant about saying most people should simply put their money in an S&P 500 index fund and let it ride.
But why do so many people make less money than they could be making?
And more importantly, what can you do about it?
Fortunately, it’s a fairly simple answer and solution. Investors tend to make emotional and irrational decisions when it comes to buying and selling a stock…
And when things start to go wrong, they tend to panic.
That’s why almost every time there’s a market crash, investors tend to panic and sell near the bottom and then wait to buy until the market has already soared.
It’s the exact opposite of what you should do.
Now, right here, is where some people might suggest you need to control your emotions…
But let’s be honest with ourselves and admit that’s easier said than done.
That’s why I believe in looking at it differently.
If the problem you have is making emotional decisions and you know you can’t always control your emotions…
Then let’s remove the “decision” part of the process.
Look, I’ll admit I’ve always struggled with making decisions. It just doesn’t come naturally to me.
I blame it on my mother, who was loving and good-intentioned, but a little heavy-handed in the parental decision-making department.
Needless to say, when I was grown and on my own, I had to figure out how to make decisions. All kinds of decisions … from insignificant and routine ones, such as what’s for dinner, to important and infrequent ones, such as what kind of career to pursue.
And you’re in the same boat. Beyond your day-to-day decisions, the decisions you must make about your money are endless.
Do I spend or save? Cash or T-bills? Stocks or bonds? Passive or active? Diversified or concentrated? Growth or value? Google or Amazon?
Sell (for a loss) or hold?
Sell (for a profit) or hold?
You get the idea…
As an investor, every decision you make can be hugely consequential to your investment portfolio and to your family’s financial goals.
All of those decisions bring your emotions into play…
And that’s where systematic investment strategies come into play.
Systematic, or “rules-based,” investment strategies minimize your role in the decision-making process. Therefore, they minimize the number of opportunities you have to make a foolish, emotional decision.
I didn’t always appreciate this benefit of systematic strategies.
When I was cutting my teeth in the investment business, I traded foreign currencies for a prop firm. I traded on a purely “discretionary” basis, which meant I was faced with decisions every minute of every day…
Do I sell now? No. How about now? Ok. Now what should I buy? The pound? The euro? Should I hold it through the weekend? Should I get flat before gross domestic product numbers are released?
The decisions were endless … and I hated it.
Eventually though, I found my tendency for deep thinking, deliberate decision-making and discipline were perfect attributes of a systematic investor.
I learned that once I develop and test my strategies — which requires deep thinking and careful decisions — all I have to do is sit back and run the strategy.
I don’t have to make decisions all day long … I don’t have to face the same decision — “Do I buy? Do I sell? Do I hold?” — each and every day. I don’t have to second-guess myself.
Truly, committing to systematic investing is one of the best things I’ve ever done for myself. It’s taken the monkey of continual decision-making off my back — and with that, I’ve seen dramatic improvements in both my wealth and health.
And it’s my sincere hope that you, too, will join me in appreciating the many benefits of systematic investing. That’s really what the 10X Switch is all about — implementing a “rules-based” strategy, with discipline, and avoiding our tendency to make “irrational” decisions with money.
Is this approach right for you?
Well, that’s something only you can decide.
But you should certainly give it a chance. I’m pretty confident that once you get the hang of it, you’ll never go back to discretionary investing again.
I know I won’t!
Chief Investment Strategist, The 10X Switch