“A retentive memory may be a good thing, but the ability to forget is the true token of greatness” – Elbert Hubbard, American writer (1856-1915)
In order for us to live a life full of financial freedom and purpose, we need to be great at forgetting things.
There is an old adage in investing called ‘buy and hold’ but I think we can go one better with a new adage called ‘buy and forget’. It’s all about controlling our natural behavioural instincts and becoming a great ‘forgetful’ investor.
Here are my top three tips to becoming a great forgetful investor:
- Only look at your portfolio once a year
- Don’t read or listen to the financial news
- Be emotionless and boring (when it comes to your investments).
Let’s look at these three in more detail.
1. Only look at your portfolio once a year
The fact is: the more we look at our portfolios, the more chance we have got of seeing them fall in value.
In fact, if we look at our portfolios daily, we will see it fall around 41% of the time. That’s pretty scary when we consider human nature makes losses feel about twice as bad as gains feel good!
If we check it once a year, we will see it fall only 18% of the time. Check it every five years and the chances of seeing it fall go to 12%. Check it every 12 years and we would never see it fall.
Now, 12 years may seem like a long time but it’s worth remembering that the investment time frame for most individuals either post or pre-retirement is 30 to 40 years.
A team at Fidelity (one of the world’s largest fund managers) set out to examine the behaviours of their best performing retail accounts in an effort to isolate the behaviours of truly exceptional investors. When they contacted the owners of the best performing accounts, the common thread was that they had a) forgotten about the account altogether or b) died!
So being a great forgetful investor can give us a wonderful combination of less stress and better returns: a winner in my eyes!
2. Don’t read or listen to the financial news
We live in a time when information is more available than ever. However, the availability of information says nothing of its usefulness.
I’m a big believer that information and knowledge is something we can Google, but we can’t Google wisdom. Wisdom is exactly what we need to be a great forgetful investor.
To illustrate the point, I want to bring to your attention an article that the Daily Mirror published in April 2014 which contained the following statistics:
- There is a 1 in 8,000 chance that we will get killed in a road accident (yet we still freely jump in our cars)
- There is a 1 in 43,500 chance that we will get killed in an accident at work (yet we still turn up every day)
- There is a 1 in 685,000 chance that we will drown in the bath (yet we still love our evening soak)
- There is a 1 in 2 million chance we will die from falling out of bed. In the UK, 20 people die every year (yet we crave our bedtime and a good night’s sleep)
- There is a 1 in 3 million chance that we die from food poisoning (yet we have three or more meals every day).
If we read this in its literal sense then we would not drive, go to work, have a bath, go to sleep or eat. Why would we take the chance?
It’s because we use our wisdom to assess the probability, and we like our chances of not being the ‘one’!
So, if we use our wisdom and want to take our chances with factual statistics about our personal survival, then why is it so absent when we read or listen to the financial media and its army of economists and so-called experts?
There is no wisdom in trying to predict the next market crash or next hot stock to own. Like us, they are rubbish at predicting the future. There is a famous saying in the world of economics that ‘economists have successfully predicted 12 out of the last 10 recessions’. Even a broken clock is right twice a day!
We need to stop paying attention to the financial media. I know that is easier said than done, but it’s vitally important if we are to be a great forgetful investor. Even when we understand what they’re doing (selling news) and why they are doing it (making money), the financial media is very good at getting us firmly aboard the fear vs greed rollercoaster. It is their job, after all!
 Greg B. Davies, Behavioural Investment Management: An Efficient Alternative to Modern Portfolio Theory, (Jan 2012), p.53
 All data from Greg B. Davies, Behavioural Investment Management: An Efficient Alternative to Modern Portfolio Theory, (Jan 2012), p.53
Our goal should be to get off and stay off this rollercoaster. We want to be on the line in the middle. There aren’t the ecstatic highs, but there aren’t the crushing lows either. The middle line might be a bit boring, but it’s a lot more likely that we will get where we want to go, which brings me nicely onto my next point.
3. Be emotionless and boring (when it comes to your investments)
It is widely known (and backed up by a stack of evidence) that we should abstain from making important decisions when we are in any of the emotional HALT states. They are hungry, angry, lonely and tired. If you’re like me, you will find yourself in one of these states most of the time!
Our emotional state can have a major impact on the decisions that we make. We know this all too well when it comes to everyday life – two of my Nan’s favourite sayings were: “never go to bed angry” and “don’t do that on an empty stomach”. This is ever more relevant in the context of investing as it can destroy wealth and hinder your plans.
Emotion can impact our assessment of probability. Positive emotion leads us to overstate the likelihood of positive occurrences and negative emotion has the opposite effect. Anger has been shown to make us less threatened by risk, while sadness makes us more threatened.
Enjoyment and risk are counterintuitive when it comes to making rational decisions; they work against each other. The more enjoyable an activity is, the less risky we perceive it to be (think skiing, boating, driving fast cars etc.).
Being a great (forgetful) investor is inappropriately labelled as risky when in fact it’s really just boring. When we assess risk, we often ask ourselves “is this fun?” when we should be asking “is this dangerous?”.
Elevated emotions provide us with some of the best moments of our lives: a marriage, birth or watching our children achieve their dreams. But as surely as emotion can enrich our souls it can also deplete our wallets and hinder our dreams. Emotion is best kept for the times for which it is most useful.
Review your plan
When we do all the above, we free up all our time, intellectual capacity and emotions to concentrate on reviewing and sticking to our plans.
It takes more than we think to remain committed and disciplined, particularly through tough times. We need to reserve every ounce of energy we have to focus on the right things. This will give us the best possible chance at ensuring we reach our desired outcomes and allow us to live the extraordinary life that we deserve.
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