Just Say No to Active Investing: Part 1


Father, techie, and money geek. Sometimes I write about personal finance.

5 Responses

  1. Steven J. Saines says:

    Hi George. With respect to your comment: “That tendency to confirm a pre-existing belief rather than refute it is confirmation bias. And it’s practically a default mode of human thought. It’s not certain why we do this. My personal belief (watch out, dear reader, I’m seeking to confirm a theory!) is that it’s much cheaper for our brains to create a belief and reinforce it than to test competing theories. We only have so many hours in the day, after all.”

    I think our brains also like to justify ourselves about being right. My brain is always justifying positions to me, internally.

    Here’s some more info about past losses. 10+ years ago I (personally, with IRA money in my SEP IRA) made a bet about the market expanding and therefore, stocks of companies in that sector will rise. I bought a Mutual Fund for that sector. Wrong.

    Recently (2+ years ago) I created a CD ladder in Fidelity, responding to my BIL’s warning that there will be a stock market crash and/or recession/depression around the corner. He advised to be ALL in cash. I was extremely worried, but cautious about the future economic outlook. I took our Fidelity IRA investments (about 25% of our net worth at the time) and created some CD ladders in Fidelity with very low interest CDs (because that’s all there were), thinking that they might be safer and a bit more profitable than just letting cash sit in an almost zero % interest climate. Wrong again. And I didn’t fully understand how to build the ladders, so I got stuck in them for a longer period than I expected.

    I can remember these losses in greater detail than any modest gains I ever made doing passive investing – Pain from Loss.


  2. georgesaines says:

    I hope to write a post at some point about the psychology of money and highlight prominently the well-documented cognitive bias towards loss-aversion. Most people are willing to spend $2 to avoid losing $1, which is entirely crazy, but common.

    Personally, I have the same tendency: I forget the small but good financial choices that I make and constantly remember the blunders.

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