The case against managing your portfolio actively and with discretion has many elements. Emotional mistakes are human and are common. With COVID and large well known tech stock prices going through the roof it's easy to get drawn into thinking you can or should pick stocks or time markets. The practical reality is that active investment decisions are very difficult because of our emotions. Regret is a powerful emotion that needs to be considered when making investment decisions.
It often starts with a confident decision. Next when things haven't gone well, without a plan to stick to you might still feel like you were right you don't change course and things get worse. These sorts of decisions can start to compound on each mistake becoming more penalizing.
Behavioral economists refer to this tendency as regret. We try to avoid the feeling of regret as much as possible. This tendency, doesn't often lead to good investment decisions. For example, we will go to great lengths to avoid having to own the feeling of regret. Not selling a positioning to avoid having to realize a loss may be more about our psychological avoidance of feeling regret than we realize. Research shows that traders were 1.5 to 2 times more likely to sell a winning position too early and a losing position too late, all to avoid the regret of losing gains or losing the original cost basis.
Having a disciplined steward to systematically implement a custom investment plan is the best way to avoid our natural emotional tendencies.
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