Investor Discipline Humans are not wired for disciplined investing Many investors follow their emotions Reacting can hurt performance Markets have rewarded discipline Focus on what you can control
The investor s chief problem and even his worst enemy is likely to be himself. Benjamin Graham The Intelligent Investor
Humans Are Not Wired for Disciplined Investing The market tanked, and I should have seen it coming. I have a proven system for picking winning managers. I wasn t wrong about that stock just unlucky. I work in that industry, so I know where it s going. Mental Errors My research confirms this is a great stock to own. I knew this stock was going up. When people follow their natural instincts, they tend to apply faulty reasoning to investing. The trend looks good and should continue for a long time. It was a bad idea, but I don t want to sell at a loss.
Many Investors Follow Their Emotions Elation Optimism People may struggle to separate their emotions from their investment decisions. Optimism Nervousness Fear Following a reactive cycle of excessive optimism and fear may lead to poor decisions at the worst times.
Reacting Can Hurt Performance Performance of the S&P 500 Index, October 1989 December 2016 Growth of $1,000 $11,510 $10,315 $7,636 $4,494 Missing only a few days of strong returns can drastically impact overall performance. $2,894 $2,175 Total Period Missed 1 Best Day Missed 5 Best Single Days Missed 15 Best Single Days Missed 25 Best Single Days One- Month US T-Bills Annualized Compound Return 9.38% 8.94% 7.75% 5.67% 3.98% 2.89% In US dollars. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. S&P data provided by Standard & Poor s Index Services Group. One-Month US T- Bills is the IA SBBI US 30 Day TBill TR USD, provided by Ibbotson Associates via Morningstar Direct. Data is calculated off rounded daily index values.
Markets Have Rewarded Discipline Growth of a dollar MSCI World Index (net dividends), 1970 2016 $100 $10 Arab oil embargo Oil prices quadruple S&P 500 down 43% Businessweek: The Death of Equities Gold hits record high US inflation at 13.5% Dow drops 23% on Black Monday Savings and loan crisis Iraq invades Kuwait Income tax rates rise Dotcom stock crash Y2K Scare Russian financial crisis Asian currency crisis 9/11 terrorist attacks Subprime mortgage crisis Hurricanes Katrina and Rita Iraq war begins Eurozone debt crisis S&P 500 down 46% US home prices hit bottom Fiscal cliff worries Brexit $48 $1 1970 1980 1990 2000 2010 2016 $0 To build wealth, you must look beyond the concerns of today and invest for the long term. In US dollars. Past performance is no guarantee of future results. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. MSCI data MSCI 2017, all rights reserved.
Focus on What You Can Control Creating an investment plan to fit your needs and risk tolerance Structuring a portfolio around dimensions of returns Diversifying broadly Reducing expenses and turnover No one can reliably forecast the market s direction or predict which stock or investment manager will outperform. A financial advisor can help you create a plan and focus on actions that add value. Minimizing taxes Diversification neither ensures a profit nor guarantees against loss in a declining market.
Disclosures November 11, 2015 Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.