Who is the Average Investor?
In the world of finance, the ‘average investor’ is a fascinatingly curious figure. Despite their investment portfolio’s consistent underperformance against market averages, they remain steadfast in their belief that their strategy is sound.
“The World Is Out to Get Me”
Each loss is quickly rationalized and attributed to factors beyond their control – my favourite is the: unfair corporate capitalist companies out to get them or having to be one of the unluckiest people just when they wanted to enter the market.
The Stock Wizard Next Door
Conversely, any profits made are instantly credited to their personal account of skill and timing. These gains are viewed as irrefutable proof of their extraordinary market-timing abilities, an accomplishment even the most seasoned professionals find elusive.This self-serving bias inflates their ego and perpetuates a cycle of unwarranted self-assuredness. This misplaced confidence, far from setting them up for success, actually primes them for further lapses in their investment journey.
Average Poor Strategy : Investor
The average investor usually lacks a deep understanding of management fees, trading costs, or broker fees. In a bid to time the market, they end up buying high, selling low, and hastily jumping onto popular trends, often right before their collapse. When they read about the next ‘big thing’ in the mainstream media – let’s say Tesla’s stock, for example, they impulsively buy without a thorough plan or understanding.
A Different Perspective on Investment
But my perspective is a bit different when I say ‘average investor’. In my context, being an ‘average investor’ doesn’t imply poor investing habits. Instead, it signifies the ambition to match or even outperform large hedge funds and those rare individuals who seem to successfully time the market.
Striving for Consistency over Extraordinary
I aim to be an investor who reduces brokerage and management fees to a minimum, maximizing the potential for average market return. I use the term ‘average’ not as a sign of mediocrity but as a benchmark. I want the average returns on all US and international stocks, bonds, and Real Estate Investment Trust (REIT) markets I invest in.
Your Power Tools as the ‘Average’ Investor
The key lies in understanding that while I might not have the financial prowess of a hedge fund manager or a full-time day trader, I have powerful tools: a long-term perspective, the power of compound interest, and the wisdom to keep my investing costs low.
My next post, The Prudent Path to Investment is where I’ll dive into the strategies to help you become this kind of ‘average investor’!
