How To Lose Money, vol 3

by | Aug 25, 2023 | Videos

How To Lose Money, vol 3

An article in Morningstar recently showed how investors routinely lose money – on their own – by moving their money in and out of funds. This is another example how timing the market does NOT work.  It’s not very complicated to see this is how to lose money.   And we hear reason (excuse) after reason (excuse) regarding WHY we ought to consider moving money around.  Most of it makes no sense (to us).

No one likes losing money, and (as mentioned in the video) people often know how to lose money all on their own – they don’t need too much help!
Yes, yes, you may be right a few times in a row – and think you are a master.  But sooner or later, the luck runs out.

Tom mentions an old saying “you can’t go broke taking a profit” and how incorrect this statement can be.  While this line helps to justify a move toward a (new or different) investment, eventually (as Warren Buffett reminds us), this can be a path toward how to lose money.

Tom also shares several of the lines he has heard over the years, which investors use to talk themselves out of positions – instead of leaving their investments as-is.



LINKS for “How To Lose Money, vol 3”

Link to Morningstar article here.
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TRANSCRIPT for “How To Lose Money, vol 3”

Welcome to the Mullooly Asset Show! I’m your host (for today) Tom Mullooly, and this is episode number 351. Thanks for tuning in.

So this’ll be a quick video on how to lose money. I know most people can say “Hey I can do that on my own – I don’t need your help!”

Interesting data from Morningstar that came out recently. It showed most investors lose up to one-fifth, or 20% of the gains that mutual funds post – because of their own mistakes!

We’ll link to this in the show notes. But very interesting point that a lot of people overlook how individual investors can lose money. It reminded me – as I was reading the article – one of the best lines I ever heard from Warren Buffett is – and if you work with a stockbroker you’ve probably heard this: “you can’t go broke taking a profit.”

I have to confess – when I was a stockbroker – I used to use that line.

It’s probably one of the worst things you can ever do. And maybe the worst bit of advice when it comes to investing. Just stick with what’s working.

The article and Morningstar talked about the past 10 years. So from 2013 through 2022.

The average mutual fund investor gained six percent, annually. So they probably didn’t make 6% in one year. But over the years, the average was 6% a year.

However, the average mutual fund returned 7.7% in the same period.
How is this happening?

It’s very possible you could have bought a mutual fund – say in the middle of a calendar year – and the fund had a great first half. You missed it.

But that only explains to the first year. What about years 2 through 10?

I can tell you – from my own experience – hearing this on the other side of the phone, talking to clients; I’ll hear things like,

“well I don’t like the market right now,”

or “I’m worried about the economy.”

Or, “this fund that I found over the weekend is actually doing better than the fund that I have! And so maybe we should switch!”

Or “I’m worried about interest rates going up”
Or “I’m worried about interest rates going down”
Or “I’m worried about the war in… fill in the blank!”

Honestly, we are talking about the last 10 years – you could pick ANY 10-year period: the answers are STILL the same.

“I don’t like the guy in the White House!” — I hear that all the time!
“I’m worried about the election.”

We hear these things all the time. These are excuses. But the worst excuse of all, and the underlying reason – most of the time – that we get these calls: “I need the money.”

You are taking money out of something that’s supposed to grow for you. It’s the worst thing that could happen.

Why do you have money that you are going to need in the short term, invested in something that’s really designed for the long term?

Please don’t do that.

We spend a lot of time with our clients talking about money they are going to need in the next year, or two or three.

That money is going to be put in something else. It’s not going to be tied up in long-term investments. You shouldn’t do that either.

One other thing I want you to remember before I close this video. Just remember this phrase. “Good. Beats. Perfect.”

That’s so important. People want to “nail the top and get out of this sector fund!” Or “I’ve got to get specifically into real estate at the bottom!” Or, “I’ve got to get out at THIS point!”

It doesn’t work.
It doesn’t work. You might you may hit it right four times in a row, and then blow up on the fifth time.

Investing is a long-term game.
We’re here to help you with that.
That’s the message for episode 351, “How To Lose Money.”

Thanks for tuning in.

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