Sam Mamudi penned a very insightful and thoughtful article for MarketWatch that points out the huge role that luck plays in investment success. I highly recommend the article because it presents several important ideas that every investor needs to know:
There is randomness in investment returns and no one can anticipate what will happen next with investment markets with any regularity; the article has some amazing statistics about the value of a portfolio after various 30 year periods (about how long most of have to save for retirement).
We tend to over-estimate our own investment skill — when something bad happens to our portfolio, we blame it on “the markets” or the banks or the Chinese; when something good happens with our investments, we think we’re a genius.
Therefore, an investor needs to worry about the things we can control: how much we save, how early we start saving, our portfolio diversification, choosing low cost index funds as our securities.
We are our own worst enemy when it comes to our health and our investments. Even though we know we’re supposed to rebalance our portfolio regularly, we don’t; even though we know we should save automatically, we don’t.
Check out the full article and see what insights you gain into your investment behaviors. Good article worth reading.