Human Nature
A recent comment said that I don’t account for human nature in my strategies. I agree, I don’t. But I think there are good reasons for this. In investing and planning for our future, we have to try to beat the humanity right out of ourselves. Some examples of bad behaviors:
People have a tendency to spend, rather than save.
People have a tendency to buy into growth stories rather than boring, profitable companies.
People have a tendency to chase trends.
People have a tendency to buy after a run-up and not buy after a sell-off.
People have a tendency to put significance on insignificant events (e.g. recent stock performance).
The list could go on but my point is that we have to fight against our natural tendencies to the extent possible. Although the short-run is exciting (it’s fun to see our net worth go up and sad to see it go down), we should try to not react to short-term events and put more emphasis on the long-run. Easier said than done. I struggle with it every day.
The best thing you can do for yourself is to know what your weaknesses are: do you like to trade? Do you get caught up in manias? Do have trouble saving? Are you over/under-aggressive?
And create a plan — you can follow — to address these issues. Before you decide on an investment/savings plan, ask yourself whether you will be able to follow it.
The investment ideas I discuss are not for everyone — they have worked for me and may work for you — but that is up to you to decide.
