behaviour
Win By Avoiding Mistakes
The rule
For ordinary investors, the game is won by whoever makes the fewest silly mistakes, not the most brilliant moves.
Where it flips
'Avoid all mistakes' can curdle into never acting at all. Sitting in cash for years for fear of a wrong move is itself a big mistake. The fix is to see that doing nothing on the big decisions - starting, staying invested - is also a mistake. Safety lies in a simple plan followed steadily, not in freezing up.
In amateur tennis, points are usually lost by the player who hits into the net, not won by a dazzling shot. The winner is simply the one who keeps the ball in play. Everyday investing works the same way. Most damage comes from self-made errors. Panic selling, chasing hot tips, over-trading, paying high fees, trying to time the market. If you just dodge these blunders and stay steady in a low-cost index, you beat the crowd by doing less, not more.
A worked example
Over ten years Arjun tries to time his entries and jumps between five 'star' funds, earning 8%. A friend who did nothing but hold one index fund earned 11%. The gap was almost all Arjun's own avoidable mistakes. [illustrative]
How to spot it
- ·returns dragged down by trading and switching
- ·energy spent seeking clever wins, not avoiding losses
- ·reacting often to news and tips
Charles D. Ellis · Winning the Loser's Game