Foolish : How Investors Get Worked Up and Worked over by the System (9781544519982) by Baumgarten Gil

Author:Baumgarten, Gil
Language: eng
Format: epub
Publisher: Bookbaby
Published: 2021-04-13T15:21:57+00:00

TIP #2 Decide to be a resident, not just a visitor.

An important distinction that marks successful investors is the ability to act as a resident of the marketplace, not just a visitor. People often get spooked by economic cycles and jump in and out of the market willy-nilly as the environment changes. They’re like first-time snow skiers deciding the best way to get down is simply putting weight on one leg, then on the other, pausing occasionally trying to figure out which mogul is coming next and how to avoid it. Looking ahead, there are many opportunities to wipe out, which is confusing to the first-time skier who from his perch on the ski lift moments earlier thought it didn’t look so bad. That’s only because the farther away you get from the actual slope, the smoother it appears. When you fly over a ski slope, it just looks like a smooth blanket of snow.

With money, people tend to drill down into the minutiae, and they see it all as steep and bumpy, with terrifying moguls to be avoided. The problem is, that leads to perceiving the market as a place you only want to visit during times of “smooth sailing.” It becomes a place you can only handle in small doses. So people go in and out, visiting with their money here and there, when the coast looks clear, only to try to back out before anything goes bad.

This has terrible repercussions, mostly in terms of fees, taxes, and opportunity costs. Most people have a wildly inaccurate perception of what bump is coming next and how to navigate it, but because we’re gracious with ourselves in our evaluation of what actually happened, we do it all again and again and again. We totally misread how we’ve done, and we totally miss out on long-term compounding, swapping it for errors we could have avoided had we just left it all alone. What we really should do is build a customized portfolio like we would a home, become a resident, and ride it out.

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