Observations on Investment Behavior
I spend a lot of time thinking about and observing investment behavior. Since graduating from the Darden Graduate School of Business at the University of Virginia in 2003 I have been involved in financial markets in a wide variety of roles under equally widely varied market conditions. I have been a professional bond trader, an institutional investor and now I am an advisor to individuals and families. Each role has unique performance objectives and metrics that require different sorts of investment behaviors for success.
As a bond trader the emphasis is on the very short term. Performance is measured by daily PNLs and progress towards an annual profit target. On January 1st the PNL resets to zero and the process starts over. Last year is completely irrelevant. As an institutional investor the emphasis for performance is on a longer time frame but also includes concerns about relative performance to benchmarks and to competitors investing in the same space. Now, as an advisor working directly with individuals and families, I emphasize performance that compounds over long investment horizons, avoiding instantaneous panicked or euphoric decision making and thinking of money as a tool used to achieve life goals rather than as the goal itself. After almost 20 years as a professional trader and investor I am convinced that better investment behavior, not better investment analysis, leads to successful investing outcomes.
The culmination of my experiences are some adages that I use as a framework to guide my investment behaviors.
SUMIT’S OBSERVATIONS ON INVESTMENT BEHAVIOR
- The best thing you can do to for your portfolio is turn off CNBC.
- No one can time the market. Anyone can get lucky.
- Bull vs Bear Markets:
Bear Market - A market environment where disciplined investing looks stupid immediately and like genius eventually.
Bull Market - A market environment where buying the stupidest investments looks like genius immediately. - Investments are the one thing that people get desperate to buy once prices have gone up and desperate to sell once prices have gone down.
Sumit Kumar, Greenwich CT