Why You Need an Investment Coach

Many of the mistakes made by investors can, in some part, be attributed to their emotions which can cloud our judgment and overpower patience and discipline. It was Ben Graham, arguably one of the best investors of all time, who said, “The investor’s chief problem – even his worst enemy – is likely to be himself.” A more modern icon of investing, Warren Buffet, has parlayed that knowledge into a multi-billion-dollar portfolio by following his own advice to “Be fearful when others are greedy and greedy when others are fearful.” See, Buffet recognizes that fear and greed are instinctive, intense, and overpowering, making them extremely difficult to overcome.

That’s why you need an investment coach.

While investing is not rocket science, it does require a strategy and the discipline and patience to manage it. With enough study on the matter, anyone could develop an investment strategy rooted in sound investment practices and principles. However, when fear or greed might cause you to break from your strategy, you need someone to keep you anchored and coach you through the momentary instinct to flee or buy outside of your strategy.

How can an investment coach help you prevent costly mistakes? These are some of the costliest mistakes investors make:

Trying to time the market

While it’s not impossible, few investors have been able to move at the right time consistently enough that they gain any significant advantage over the buy-and-hold crowd. Morningstar estimates that the returns on portfolios that tried to time the market over the last decade underperformed the average return on equity funds by 1.5 percent during that period, and that includes several years of negative returns. To do better, investors would need to have called the market shift seven out of ten times, a feat that true timing pros have a hard time matching.

Trying to pick the winners

Stock picking has become a multi-billion-dollar industry, attracting investors and speculators who think they have the predictive powers to choose the next winner. Investors also pay portfolio managers millions to apply their skills in picking just the right stocks so their funds will beat the market.

So, how are they doing? The results are not very flattering. Over a five-year period, from 2016 to 2020, only 48 percent of managers of large-cap funds were able to beat the S&P 500. The vast majority of them barely edged out the index.

Translated, that means that all investors had to do to earn better returns than the pros during that period was invest in an S&P 500 index fund, which doesn’t require paying a portfolio manager 2 percent in annual management fees.

Following the Herd

If you have ever observed an animal herd, you may have noticed they are slow to respond in crises, but it’s often in the form of panic when they do. It’s natural to feel isolated and vulnerable when you see the masses moving off into different directions, leaving you with your own doubts about the validity of your direction. Would you feel any different if you knew they were heading towards a cliff in the dark of night? While that is not necessarily a certainty, you can say that an overreliance on the hyperbolic media, the latest trends, and market performance can lull investors into a blinding complacency that will impede their ability to change direction before they reach the edge.

A Good Investment Coach is Invaluable

The real value of an investment advisor is their ability and willingness to be your investment coach – to educate you in the laws of investing, keep you focused on your target, hold you accountable for your decisions, and keep you from falling into the common behavioral traps.

In essence, that is why you pay a fee – not for a plan or a strategy, but for the coaching that every investor needs to be successful.