STREET DOGS

Adapted from A Dash of Insight, Jeff Miller’s list of frequent investor errors: They try to be traders. “The successful investment strategy differs markedly from trading,” says Miller. “Most investors seriously underperform long-term results by selling low and buying high. Even successful years have significant drawdowns … 15% is not unusual. Investors need to expect this.”

They don’t get the mix right. If it feels stressful, it’s because your asset allocation is probably wrong.

They think they are experts on world events. Taking a long-term perspective is easier said than done. With everyone on TV explaining with great confidence what’s just happened, it’s easy for the average person to think they are in step.

They confuse politics with investing. Investors need to be “politically agnostic” in their assessment of current events so as to determine most likely outcomes. They wait too long for problems to be sorted. It is the single most costly mistake. Investing means balancing risk and reward, not waiting for safety.

They fail to see what’s working. There is no magic moment. Finding market solutions is a process, not an event. They don’t manage risk effectively. “Right now, it is the most important issue for investors,” says Miller. “There is plenty of ‘headline risk’ that may or may not translate into lower stock prices.”

They react to news. One of the biggest mistake that individual investors make is in bad timing by following headlines. They try to go “all in”. If you are completely out of the market, you are not alone. Miller’s advice: Consider buying dividend stocks and selling calls against them. “This works in a sideways market too,” he says. “Alternatively you could look at buying in the sectors with the lowest p:e ratios.”

Michel Pireu — e-mail: pireum@streetdogs.co.za