How to lose money

As the year comes to an end, it’s time for some honest reflection.

I’m not too proud to admit making some stupid investing decisions that have come home to roost. These haven’t been so financially damaging to put my family and I out on the streets, but they have bruised my ego.

Positive thinking and a dose of optimism are important. But extreme overconfidence can be downright dangerous.

Where did I go wrong?

Overconfidence.

It’s a well-known fact that men think we are better investors than we really are. We read a few articles and see a few talking heads on television that reinforce our thinking. This ‘illusion of control’ causes us to override any safety mechanisms and we are urged to act.

How else would I have considered investing in a Gold ETF at its peak a wise move?

And if you think you are better than average and can time the market, try this interactive game from Quartz to you to see how good you really are.

Following the herd.

Two of my friends invested in rental art. The marketing brochures were alluring. High rental yields in today’s low interest environment, and adding art to a diversified portfolio made oh so much sense. Moreover, dead painters meant that the value of the underlying works would only go up. So the theory goes.

But if it is too good to be true, then it definitely is. There is Picasso and there is Picasso, and Sir Peter Blake is in rude health. And just because your friends invest in something doesn’t mean you ought to.

And yet…

On the other hand, we don’t want to dial down our confidence to nothing. Otherwise, inertia takes over and we don’t act at all. And history tells us that it’s time in the markets, not timing.

Bring in 2017!

Ronald Wong