○ Buying a bit of whatever performed best last year, repeat
○ Eventually, they own the worlds most expensive and least efficient index fund
• Under diversification
○ Narrowing of a portfolio down to one idea
○ 1999, Dot.com IPO's, ecommerce stocks, and telecommunications stocks
○ In the bear market that followed, the broad US market down 50%, Nasdaq down 80%
○ Single stock portfolios - tons of one-time "one-decision stocks" now either totally gone or worth a fraction of what they once were
○ Examples today - owning company stock, owning only bank stocks, owning only high-tech stocks
○ A complete loss of an adult sense of danger
○ Your only concern is that somebody, somewhere, owns investments that are going up more than yours are
○ Spring of 2020, US market down 34% in about 20 trading sessions
○ Panic is a loss of faith in the future, and a belief that somehow this time is different
○ S&P 500, 74% up from bottom on March 23, 2020
○ S&P TSX, 66% up from bottom on March 23, 2020
○ Borrowing at 2-3% to invest in stocks that long-term return 10%
○ Very rational for some, rarely practiced this way
○ Too often done at the wrong time to buy the wrong things
○ Often done after the markets has been going straight up to buy very speculative investments
• Speculating when you think you're investing
○ Ie. The investor who owned 5 tech IPO's in 1999 who said they were investing in "e-commerce"
○ Today - art, cryptocurrencies, etc.
○ Why do you own this? If the honest answer is "because it's been going straight up for the past 6 months", you are absolutely speculating - goes for individual companies or funds
• Investing for yield instead of total return
○ Ie. Buying puerto rican government bonds at 8% or 10% yield, or a Mortgage Investment Corporation with a "guaranteed return" of 8%
○ Investor will fixate on the guaranteed income, ignoring the fact that they are taking on risk
• Letting cost basis dictate investment decisions
○ Ie. Don't want to sell a loser after it's lost a bunch of money
○ Ie. Don't want to rebalance out of a very concentrated position, wanting to avoid taxes
They won't get a big chunk out of harms way, to avoid having to pay tax on a small portion of it.
Inversion: The Power of Avoiding Stupidity (fs.blog)
Thanks for listening/watching!