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In Stumbling Upon Happiness, author Daniel Gilbert explains a few fundamental characteristics of how the human brain works. He completes the sentence The human being is the only animal that ______, by filling in “thinks about the future.” He indicates that the brain is an anticipation machine and its ability to “make” the future is the most important thing it does. The skill of expecting something next is a uniquely human tool.
In tandem with the faculty of expectation, our minds are built to exercise control.
This was a revealing point for me, and certainly explains a lot. My brain is wired to be in control, and that’s that. I don’t even like riding in the passenger seat. Not controlling the speed of the car and the braking gets my stress juices flowing. Even worse, if it’s not my car, I don’t decide when I can leave. There’s the anticipation factor working its way in. Not only do I struggle with not driving, I am thinking about when the drive home will occur.
I also excel as a project manager. I like to call the shots and make decisions, directing adjustments along the way, and finding solutions.
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Free Online Wealth Summit – Vanguard Senior Analysts on Active vs. Passive Investing
The stock and bond markets can be a fearful and terrifying place, especially considering their effect on your financial portfolio. No one wants to see red numbers on their account statement after all. Unfortunately, that’s part of investing.
On average, the stock market enters bear market territory (a drop of twenty percent or more) about one in every four years. We’re eight years into a bull market now without really coming close to bear market territory.
I found some insight from two of Vanguard’s senior analysts over at the Wealth Summit. The Wealth Summit is a collection of interviews and panels with thirty or so money experts. Companies like Vanguard, TIAA, and Dimensional Fund Advisors have speakers at the Summit. There’s a New York Times bestselling author as well.
So, you bought that stock and expected it to return a pile of cash to pay your current debt. How long has it been, four months? You watch it every day. It’s a good day when it goes up, if it goes down, it clouds your mood. Today, it’s down 12%, maybe it’s time to sell? You sell the loser and put the diminishing dollars into the bank or, worse yet, into another stock that you expect to skyrocket. Within a few months, you’re disappointed again. The cycle repeats.
Here’s a sobering thought. If you’re not happy with your investment returns, it’s your fault. If you’re new to investing, you would best follow research-based advice – it will alleviate future regrets.
I promised that I would write about my investing mistakes. I suppose it’s time to come clean.
Most of my career involved working at Big 4 accounting firms and large corporate tax departments in the financial services industry. Working for a Wall Street firm was no guarantee that I was proficient at making good investment decisions. The reality is that I was aggressively ambitious in my career and rarely paid attention to the important tenets of investing. Back then, my job required long hours and there were summers that I didn’t see the light of day. Inevitably, every other area of my life was neglected. Getting advice from colleagues was no help either. See my guest post on DistilledDollar.com. I read a few books, but my immature mind and stupid habits managed to squash my investing success.
Consider these blunders:
Betting on the next best thing: Nanotechnology. I thought I was catching an unknown trend in technology. Bye-bye $8,000.
Expecting Quick Results:
HD Home Depot – Bought Sept, 2002: $33.36, Sold in 2006 at $37.50; today $156.00.
AMAT Applied Materials – Bought Oct 2002: $11.91, Sold in 2006 at $17; today $44.00.
Let me state emphatically: I didn’t sell these stocks because I needed the money.I sold them because they weren’t blowing my socks off. Despite a 40% gain, AMAT wasn’t turning me on.
Ol’ reliable. Isn’t she a beaut? This baby is turning 20. While most people would rather be seen in the back of a hearse than a car this old, I embrace its charm. The visor sometimes falls in my lap, the radio volume lowers or becomes sharply louder when I hit a bump, and there’s that strange clicking when I put the fan setting on the front windshield.
She’s been sprayed a few times to cover up the bruises. The front bumper is secure, but if you look closely, it’s slightly askew. That’s left over from when an old man T-boned the passenger’s front quarter panel. She’s been punched in the gut by shopping carts and side-swiped by careless drivers but she rides on like a champion.
You know that soft whistle-y sound when the aura enters the room in the Twilight Zone? I hear that coming from under the hood. Those sounds are helping me secure my future as I’m aggressively working towards an early retirement.
Of all the things we buy, our car is the most personal and sensitive. Next to a house, it’s also the most expensive. And people love to judge, right? We are all judged on what we drive. Some will even determine if you are a good match for your car. Like, “What’s that old geezer doing driving a Corvette? There should be a hot guy in the driver’s seat.” Gotta love the American way.