?You?re an idiot!?
She said this to me in response to overhearing me discuss the theme of my book, Investiphobia: Overcome Your Deepest Investment Fears with a friend on the deck at Starbucks. At least she waited until my friend was gone to make her observation. So, I asked her why she believes I am an ?idiot? and had a reasonable discussion despite her comment.
Surprisingly, she based her conclusion on two observations she made relating to the purpose of my book and it?s message.
She said if my purpose is to help people overcome and eliminate their fears, I?m like Don Quixote galloping towards windmills with a lance because people will always have fear and there?s not one thing I can do about it. That is partially true, I cannot conquer someone else?s fears. They, that is the person with the fear,? must do it themselves. However, I pointed out to her that I can help people understand the fear they have is a result of a choice. A choice that they made, probably many years ago. I can also help them make a better choice for their future and provide a guide to help them on their way to a life without fear. She felt my goal was noble, but unreachable. I agree, there will always be those with fear. I am working to make it a lower number.
She also believes I?m an idiot because I believe people should invest in the stock market, particularly this market. You know, the one that?s down over 250 points as I type this post! She did laugh when I said that to buy low and sell high requires an idiot. Buying an equity (stock) mutual fund today would be, in the view of many, something only an idiot would do and that is the reason why it requires an ?idiot? to buy low and sell high. Buying today could very easily make you feel like an idiot if you are thinking short-term. It?s possible, maybe even probable, the markets will be lower tomorrow and you can always buy cheaper if you wait. Actually, you might be able to buy cheaper but not if the market takes off.
The market low of early May 2009, was around 6,400 for the Dow Jones Industrial Average. Only an idiot would buy then! Even with the declines of the past month, the markets have returned over 85% (from 6,400 to 11,000 at the moment) for an annual rate of return in the vicinity of 40% over the past 2 and 1/2 years! I suppose I was a bigger idiot in 2009 since I?ve always advocated investing in the stock market!
Selling at a high feels equally idiotic. Most people have an even more difficult time selling when an investment is high than buying when it is low. When a stock or mutual fund price is rising it feels idiotic to sell, after all there?s no where to go buy up! The first mistake investors make when they buy or sell is following the price of the investment after the transaction. Once you?ve bought or sold, you?ve locked in your price. Following the price may crate remorse, which is available for sellers as well as buyers. Buyers have remorse if their investment falls below their purchase price and sellers have remorse if the price goes higher. Both are making the mistake of focusing on the past instead of the present.
At the end of the conversation, she still felt like I was an idiot, but in a good way. My advice to you, practice being an idiot. It will make you feel smart in the long run.
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Source: http://www.enemyofdebt.com/2011/09/an-idiots-guide-to-investing/
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