Index Investing Pioneer Charley Ellis says what gave rise to the success of the Index Fund, continues today: “It is virtually impossible to beat the market,” he told CNBC’s Bob Pisani on last Monday’s “ETF Edge”.
But Ellis warns of another obstacle that is just as high as the long -term interrelations of active management that stops many investors: you may be your own worst enemy when it comes to your investment strategy.
The complexity, volatility and an infinite number of other variables of the market can cause unpredictable price fluctuations, but your own mentality is just as important in the variables that your financial portfolio can reduce.
In his new book ‘Rethinking Investing’, Ellis describes a whole series of unconscious prejudices that influence our thinking about money in the market. A few of the greats he addresses in the book:
- The misconception of the gambler: The conviction that, because you were right to choose one stock, you are right to choose all other shares.
- Advantage: Search information that confirms existing beliefs.
- Herd mentality: Blind after actions of a larger group.
- SUNCED COSTS MISCOUNT: Continue to invest in failing investments.
- Availability: Being influenced by easily accessible information, whether it is actually valuable or not.
The effects of these prejudices on your portfolio strategy can be important, says Ellis, and investors must lead to them “reconsider” their market approach.
“Instead of trying to get more, try to pay less,” he said. “That’s why ETFs … have been so great.”
Research shows that ETFs usually have lower costs than traditional actively managed investment funds, although traditional index investment funds such as S&P 500 funds of Forefront And Fidelity are also ultra-low costs (some are even management costs).
Ellis states that the use of lower reimbursement funds, combined with letting go of our behavioral prejudices, can help investors to win for years or even decades later.
“They are boring, so let’s leave them alone, and they work in the long term, very, very beautiful,” he said.
For a long time ETF expert Dave Naddig, who appeared with Ellis on “Etf Edge”, agreed.
“People who try to predict that people always work terribly,” said NADIG. A long -term investment in an index fund “helps you overcome a huge number of these prejudices, simply because you will pay less attention to it,” he added.
He also pointed to the mistake that many investors make of trying to beat the market by timing it, but to melt himself. “There are more good days than bad days,” said Naddig. “If you miss the 10 best days on the market and you missed the worst 10 days on the market, you are still much worse than if you are just invested. Math is quite difficult to argue with.”
Another mentality Shift -tip that Ellis offered on last week’s “ETF Edge” for investors who focused on having sufficient investments for a safe pension: start thinking about the income flow of social security in a new way.
Indemnification