What’s your worst enemy when it comes to investing? Well, for starters the answer is a who, not a what. It’s not Janet Yellen, President Obama, or Mario Draghi. You are your own worst enemy. That’s right! Josh Brown of Ritholtz Wealth Management recently blogged over on his site (The Reformed Broker) about this topic explaining:
“China is not threatening your portfolio, nor is the price of oil or the level of the Fed Funds rate. What’s threatening your portfolio is the way in which you may react to any of these items, plain and simple. Your emotions and the actions you take during times of increased volatility or drawdown will ultimately have more impact on your long-term returns than any exogenous thing that may come along.”
Josh is spot-on with this assessment. Far too frequently investors let their emotions get in the way of otherwise sound strategies. When you choose a particular investment strategy, the last thing you want to do is stray from it. This is precisely what so many investors do though. Mike Tyson once said, “Everybody has a plan until they get punched in the face”, and that applies to investing just as well as it does to boxing. When investors need to stick with their plan the most, they abandon it because they get “punched in the face”.
An investment strategy needs to be something you can stick with when the market is going up, down, sideways and everything in between. Here at Mullooly Asset Management, we believe in point and figure charting and relative strength. Other investors and advisors may have different methods that work for them, that’s great. What matters is being able to stick with whatever your chosen strategy is. Don’t become your own worst enemy!