Investing Is Like Losing Weight

Losing weight is pretty simple, right?  Eat less and move more, and you’ll lose weight.  So if losing weight is so easy, then why are so many of struggling to lose our extra pounds? 

In a similar way, investing in the stock market is pretty simple too.  Buy stocks or stock funds and hold onto them for 20 years.  History has shown that if you just do that, you’ll make money and be successful.  Well if its that easy, then why do so many people end up with investment returns far below the overall market?

Maybe the answer to both questions is about the same.  The answer is, “It’s not as easy as it sounds.” 

When it comes to weight loss, there are a lot of road blocks that make it hard to be successful.  Just to name a few:  chocolate, oreos, ice cream, enormous serving sizes at most restaurants, and a busy schedule that makes it hard to find time to exercise.

When it comes to investing, there are just as many road blocks that keep most people from staying ahead of the market.  Here are a few of the main things that stand in investors way:

1.  Emotions.  Emotions are one of the main drivers of stock market prices.  But your emotions can also be one of your biggest road blocks.  The specific emotions I’m talking about are fear and greed.  When the market is up 70% like it’s been in the last year, people’s greed leads them to buying more and more, even at sky high prices.  This additional buying can push the market higher for a time, but eventually the steam runs out and it goes back down.  Then when the market it way down and people are losing money, their fear kicks in and tells them to sell before they lose it all.  All the selling pushes prices down further and faster until the selling runs out of steam, and then it heads back up again.  I can’t tell you how many people have said to me, “When I buy something it goes down, and when I sell something, it goes up.”  If this seems to happen to you a lot, then your emotions may be getting the best of your investments.

2.  Conflicts of Interest.  Many of you have heard me talk about this before, but I feel that it’s a big enough road block that I’m going to keep talking about it, sorry. :)  Investors out there are getting a lot of advice from commission driven brokers and insurance sales people.  Most people want to believe that others are honest and will in turn trust the advice they are given, especially when it’s coming from “an expert”.  But what they don’t realize is that “expert” may have a sales manager looking over his or her shoulder making sure that he or she is meeting the company’s sales goals.  Often, the pressure to sell, and the commissions that are paid, are too much for an advisor to resist when it comes to giving advice.  What ends up happening is the client gets “sold” something that is in the best interest of the broker/advisor, and not in the best interest of the client.  For this reason, it’s EXTREMELY important that as an investor, you ask for full disclosure of potential conflicts of interest your advisor may have.  Is he getting a commission from the sale?  Is there an incentive trip involved with the sale of this product?  Is he or she required to meet certain sales goals each quarter or year?  I’m not saying these things are bad.  I’m just saying that if you are aware that there are possible conflicts of interest, you will be more inclined to do some more homework or ask for a second opinion before you make a decision.

People can lose weight, and they do.  Studies have shown that people are more successful at losing weight when a close friend, family member or coach is helping to remove the obstacles in your way.  People can also be successful investors in the stock market.  Having a trusted advisor who can help you control your emotions, and who has your best interest in mind will help eliminate the road blocks that stop you from achieving your goals.

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