Investing Inanities

| Gerhard Lanz | Notes

In his talk to Cal Tech students, Charlie Monger mentioned that one of his hobbies was to “collect inanities.” These “inanities” (i.e. “stupidities”) help him to learn from others and avoid common investing pitfalls. I’ve begun collecting a few myself.

  1. Picking a fund based on solely:

    • A familiar brand or on the basis of convenience
    • Past performance
    • Ethical criteria
    • A friend’s recommendation
    • Switching unknowingly into a different type of fund and not realising the impact
    • Mixing funds within a scheme in an attempt to spread risk, when diversification happens on the asset level below, and many funds will already be invested in the same underlying assets (albeit in different proportions)
  2. Seeing just the short term and “now” risk—ignoring “later” risk.

  3. Confusing risk as being just volatility—the ups and downs in value that investments can have. There are many kinds of investment risks that can keep us from reaching our goals and volatility is not necessarily bad.

  4. Getting scared off by exaggerated retirement requirements and high nest egg numbers, causing paralysis and not setting a retirement income goal.

  5. Herding: Investing with the crowds, instead of according to our goals.

  6. Basing future returns on past performance.

  7. Being pleased with as single performance result: “You are up +6% year-to-date… isn’t that great?”

  8. Not being willing to sell below our purchase price: “Because as long as I don’t sell my position… I don’t lose anything!”

  9. Overreacting and missing opportunities.

  10. Failing to have an investment plan.

  11. Fixating on losses.

  12. Dropping your guard and forgetting about other aspects of your personal finances.