Old investors not learning old lessons!

The popular and timeless proven wisdom in investing goes ‘new investors learn old lessons’. But rather the volatility this year has suggested to me that there are old investors a plenty who have repeated the same past mistakes they made as new investors. The wealth advisor who has made her clients build cash near market bottom in June or the fund manager who sat on cash last few months and now is scampering to buy what has not moved already. The retail investor who waited for 15pcnt more correction when several of his watchlist stocks were down 30pcnt from peak. While he has missed getting in, these stocks are back to peak levels and he is plucking his hair out and is gripped by FOMO. May I add that the stock list was anyway made basis what gave spectacular returns last few years and not basis his own understanding or conviction of what the future may hold. The reality is that what is overvalued can get more overvalued and remain so after a bit of a pullback. What is undervalued may remain weak for a while and test the most hardened value investor. Over the longer term, these errors do come to haunt. Either ways the holding power or for that matter, the clarity of buying or selling comes from your own deep understanding of the business and its risks.

The pain to most investors comes from one simple futile attempt – taking a view of near term short term market movement. Deciding to move investments across assets between bonds, stocks, gold, international stocks by taking a short term view of their expected relative performance or basis their recent fanfare and hype. A well diversified allocation across these should serve well over time but what can hurt is taking self-deluding tactical calls between them to generate excess alpha. Usually this results in self destructive results over time emanating from higher tax payments, frictional costs of trading, loads and commissions, and missing some solid sharp rallies in equities which ends up hurting long term equity returns.

Surprisingly, new investors aside, many old investors succumb to the same old mistakes, again and again. The temptation of this time its different, and this time I will get the market call right is too hard to resist, full of excitement and thrill. As a result a lot of time is spent on studying global macros, money flows and historical market behavior. Studying macros is one thing but using it to predict the market is another. Macros matter, ofcourse they do. But they seldom give the average Joe any predictive power. The best global strategists with the best sounding logic almost always give conflicting views, change them every few quarters, and are on average, as right as they are wrong.

The same story repeats every few years and several investors get grey hair yet do not mend their ways. One day they will get right that 15pcnt down move, that quest is worth the effort and the opportunity costs of several wrong calls. So they justify to themselves. Never be confounded when most tell you how they sold at the top and bought at the bottom. A bit of self delusional distortion of facts is common in this business.