Investment Success
Falling down is not a failure. Failure comes when you stay where you have fallen.
— Socrates
How does one measure investment success? Is it getting a 30% return from your investments? Or maybe it’s all about performing better than your brother-in-law who has been bragging about his crypto-coin success during family dinners? Or perhaps it is an avenue to show your prowess in your friendly but competitive university group chat?
Since 1994, investment research firm DALBAR publishes an annual study on investor behaviour and the returns they achieve, comparing them to buy-and-hold benchmarks.
The study focuses on the actions that investors take and their results. Despite mountains of research, financial education and data showing the value of remaining invested for the long-term, sad to say, year after year, investors continue to underperform.
When you dig into behavioural science, there are a few things that cause investors to perform poorly. The most common is to panic at the wrong time and allow the brain’s fight or flight response to take over. Other common mistakes are holding un-diversified instruments, anchoring on past prices, and extrapolating the past into the future.
However, an issue which doesn’t really get talked about enough is how FOMO takes over when you see how easy it is for others to get rich. You then measure your own success on what others have versus what you don’t.
This makes us mistakenly believe that other people are looking at what we do with our lifestyle and investing decisions; we end up doing two things:
Trying to perform for others,
and copying a strategy that might work for someone else but is absolutely the wrong one for us.
We suggest that a better way to measure investment success is by asking —
What satisfaction would you get out of your investments?
Could it be to;
Allow your family to live a better life?
Allow you to buy the things you wanted?
Help those in need?
Retire early?
Or perhaps it’s none of these things and you really just want to show off how much you made. If that’s the case, then this article is not for you.
For the rest, keep these in mind if you constantly feel stressed about whether you are “keeping up with the Joneses”.
Compare inwards rather than outwards.
Does it matter if Nvidia did 171% in 2024 and you only did 10%? It doesn’t. If you consider that the 10% allowed you to take one step closer to that retirement dream that you and your spouse had been talking about, would you still be unhappy?
Comparing the upsides without contemplating the ways it could go wrong is a surefire way to be unhappy. It is impossible to win the comparison game especially if the news does us no favours and constantly reports about someone winning a $10M Toto draw, or the “shrewd” person who quadrupled their capital from a property investment they held on since the 90s. After all, “Millions lost in losing Toto tickets” doesn’t sound very good as a headline. There’s always going to be someone getting richer faster than you.
The moment you stop comparing outwards and you focus on what you need to achieve to make you happy, it is much easier to enjoy the investment process and feel contented.
Everyone is different
A lot of financial mistakes come from trying to copy the decisions of people who are different from you. Should you care that Warren Buffett’s investment company is sitting on a record 40% of cash out of its total assets? What Warren Buffet does will certainly be different from you. After all, his timeframe, net worth, and ideals are different from yours. If you are a billionaire like him and will be donating 99% of your net worth to charity when you pass, then perhaps you could consider copying some of what he does.
If you are none of these, then perhaps what he does is not applicable to you. Be careful who you seek advice from, be careful who you admire, and even be careful of who you socialise with. Everyone is different and will have their own opinion. When you accept this, you’ll be less susceptible to people with different goals and personalities telling you what the right thing to do is.
Focus on long-term endurance
over short-term comparison
A lot of people say they are long-term investors but struggle to actually do it. One reason is they get caught up in comparison – comparison to others, benchmarks, and getting affected by the news which reports on some sort of market disaster every other day.
Long-term investing is about being able to accept a certain level of loss and have a plan to manage that type of damage. You would also have to always come back to the reason why you started in the first place and how you are tracking along with your goals.
If you can’t do that, you’re pushed into the near-impossible task of attempting to avoid short-term volatility. If losses worry you, then investing is not for you. Even conservative investors found out over the past 3 years that bonds could suffer quite substantial losses during certain market conditions.
Research shows that successful investors share a few common traits. You may be surprised to hear that intelligence and knowledge of financial markets are not among them.
Not having the need to appear smarter than others, comparing your outcome versus your own goals, and a long-term discipline, will put you on the path to success.
