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Lies Investors Tell Themselves

By Ben Carlson, A Wealth of Common Sense

“The reason I talk to myself is because I’m the only one whose answers I accept.” – George Carlin

Hedge Fund manager Dan Loeb had this to say about a recent two month stretch of terrible performance (via Business Insider):

…there’s just an incredible amount of uncertainty in the country both in regards to the political situation and corporate governance. There’s also a great deal of uncertainty about big M&A deals getting done. Regulatory uncertainty “will be a wet blanket on top of investors until transparency and a level playing field are restored in the markets.”

It’s funny how regulatory uncertainty seems to be highly correlated with poor performance in the minds of portfolio managers.

I’m not trying to single out Loeb here. The guy is a very accomplished investor. But his statement just shows that even some of the most well-known investors lie to themselves instead of admitting they just had a period of poor performance or were simply unlucky.

It’s something all investors do. It’s a coping mechanism to deal with the inherent complexity of the markets. And with the benefit of perfect hindsight, we can craft a reasonable explanation for every past move.

Here are some other lies that investors tell themselves on a consistent basis, including many I’ve told myself over the years:

If only I would have taken my own advice…

I’m not wrong, the market is. You’ll see.

Investing is easy.

I can predict when the next correction is coming.

I’ll be greedy when others are fearful.

I have an accurate discounted cash flow model that tells me exactly what this company is worth.

I know everything there is to know about the markets.

I’ll invest when there’s more certainty in the economy.

If the politicians would just get their act together the markets would take off.

I can time the tops and bottoms in the markets.

I never make emotional decisions.

I’ll buy hand over fist the next time the market crashes.

I can predict where the markets are going next.

I know exactly what my investment returns are.

If I just try harder, my performance will improve.

I knew I should have sold that stock before the latest earnings release.

If only I would have bought Apple at $10 a share.

I know where interest rates are going.

I have a process in place to consistently pick the best up-and-coming fund managers.

High frequency traders are killing my trading system.

I have a fool-proof system.

Don’t worry, I can ignore the noise.

I know exactly what Tim Cook should do with Apple’s stockpile of cash.

I blame the Fed for my poor performance.

My returns are always in the top quartile.

I’m never wrong.

I have a good handle on my tolerance for risk.

My risk tolerance doesn’t change based on changes in the market.

My strategy works well in every market environment.

I’m intelligent, so I can just out-think the market.

I’ll start saving more money for retirement in the future.

In Two Paragraphs, Dan Loeb Perfectly Sums Up Why October Has Been A Nightmare For Hedge Funds (Business Insider)

Further Reading:
Excuses for underperforming the market