UnThreaded | Threaded | Whole Thread (25) | Ignore Thread Prev | Next
Author: Mark0Young Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76111  
Subject: Re: Retirement Sob Story Date: 2/11/2005 9:32 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 1
This is going to sound cold and heartless, but some people are just plain stupid!

If we substitute "ignorant about investing" for "stupid", and add hubris, greed and unfamiliarity with bubbles, I would agree 100%.

The guy in the article from the first post in this thread obviously did NOT have an asset allocation plan. My guess is that he was too tech-heavy, trying to make the "big kill."

Tech heavy would fill the bill.

I remember hearing phrases like "Old ways of evaluating stocks don't matter. We need new ways of evaluating stocks," and "This time it is different." Does that remind you of the Internet craze where many high-flying companies didn't even have a hint on how they would eventually earn money, yet their share price went right out the roof? Those of us who have longer memories remember the same things being said about PCs, consumer electronics, aerospace. Unfortunately I was not an investor back in the electronics and aerospace bubbles (my father was), but the Internet craze reminded me of what I read in The Wall Street Journal back when I was a kid, reading my father's magazines. But when I was finally an investor, those memories made me cautious of the Internet bubble, even though I felt like I was missing out--after all, one of the funds had just recently had a 400% growth in just one year. I heard of "worstification" as a put down on diversification.

But I stuck to my asset allocation plan and kept on adding to my investments as per my asset allocation, and came out OK.

Those who were pulled into the Internet bubble or the tech bubble, and then bailed out a couple years ago, did poorly. An Internet fund that was started by one of the managers of the fund that had gained 400% growth in one year had a subscription price of $10, a bunch of people jumped in, and a year after it actually opened the NAV was hovering around $1. I did look at that fund once it was publicly trading, and of the top ten companies it invested in, eight had multi-year losses, most of those didn't even have an identifiable way that they would make money, and the two companies that actually had profits were health care companies.

It seems that just enough memory has to pass before the next group of investors come along and pump up prices of yet another sector. I don't know if that will be health care stocks (drugs, hospitals, prostheses), flat screen manufacturers, water purifiers, energy producers or something else, but I am confident that something will be the next bubble and again people will be saying, "This time it is different. The old ways of evaluating stocks don't apply anymore, we need new ways of evaluating stocks" and calling those who diversify and have part of our investments in bonds as "old fashioned."

It is sad, but the REALLY SAD part is that there are MANY, MANY more like this guy.

The majority of individual investors practice one or more of these types of behavior:

- Invest too little

- Invest too conservatively

- Invest in too risky of an investment

- Chase performance (getting into each investment after it reaches its peak)

- Let greed and fear drive buying high and selling low

- Are too concentrated in employer's stock

- Fail to diversify beyond one asset type, or even beyond one sector

And that is ignoring issues like Asset Allocation, expenses or managing the tax impact of one's investments.

The Dalbar Study of Fund Flows may be controversial, but I have seen a couple fund families report that people get worse results than what they invest in, specifically because they chase performance, time the market (and time it incorrectly), or allow greed and fear to drive their investment decisions, so many individual investors are getting into and out of the various funds at just the wrong time.

There is disagreement here on Fool.com and also over at Morningstar.com on how one should invest, but there is pretty much a consensus that one needs to be disciplined in one's approach, and one needs a way to get the emotions out of the investment decisions.

Step away from the self-selecting sample of those who know something about investing or at least curious, and you will find that the majority of people are pretty much clueless, not knowing how they will react when it is their own money in investments that lose 20% or 30%, or believing that investing is no better than Las Vegas, or falling prey to the advertisements of day trader seminars or other trading strategy seminars.

Unfortunately, it isn't in line with the compensation methods for investment advisers, brokers, or seminar leaders to help potential investors in a way that is best for the investors' best interests. And employers? They don't give any investment materials either, beyond the prospectuses and plan summaries for their 401(k) plans, because they are afraid of lawsuits, leaving their employees by and large ignorant about investing.
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (25) | Ignore Thread Prev | Next

Announcements

The Retire Early Home Page
Discussion on accelerating retirement day.
Pencils of Promise - Back to School Drive
"Pencils of Promise works with communities across the globe to build schools and create programs that provide education opportunities for children."
Post of the Day:
Deranged Monkey Criticism

Amazon: What Bezos Believes
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement