What, me go to an investment advisor?

March 26th, 2010

I’m my best investment advisor
I’m good at handling invest¬ments. Anyway I don’t have time to go to a professional. But read this: a re¬cent Northwestern University study that showed that about two-thirds of participants in a survey thought they were managing their money a whole lot better than they really were. Overconfidence made these investors ignore the reality that their invest¬ments weren’t as strong as they thought.

Overconfidence
Whatever the reason that brings overconfident inves¬tors to an investment advisor, once in the conference room the overconfident investors tend to have distorted expec¬tations of their advisor. Ad¬visors who recognize this be¬havior will spend ex¬tra time with these clients explaining what’s realistic to expect, and help clients un¬derstand the metrics that can reasonably be used in deter¬mining investment success. If you or your spouse feels a little too confident in your ability to manage money, take a humbling look at all of the Wall Street experts who lost billions last year and take stock of what you have that they don’t.

Under-confident
On the other hand, under-confident investors know that they don’t know it all. Many times I’ve heard people say, “I don’t know much about money, but I have a knack of picking winners.” I like their vote of confidence but none of us has prophetic vision.

The future
So when people suggest that they can predict the future, I get a little skeptical.

Over¬confident advisor meets under-confident investor
What happens when an over¬confident advisor meets an under-confident investor? Unfortunately, this isn’t the opening line of a joke, but a recipe for financial disaster.
Try to identify where you and your advisor fit on the confi¬dence spectrum, and then as¬semble a portfolio that will work for you. Take a long, hard look at your assets, in¬come, and goals, and then get to work on putting together a rational, reasonable, finan¬cial plan.

How I do it
I started with an advisor. I joined one of these stock advisory services and read their tips avidly. I didn’t have much to invest but whenever I saw a tip that was within my reach I bought those shares. When the recession started I watched the value of my portfolio dropping each day. I understood then that my share advisory service was not operating properly in the falling market. I sold a few stocks at a loss and began buying low priced shares. As soon as I made $100, I sold and put my meager profit into buying another low priced share. I picked the shares by price and not by anything else.

My system worked
I bought Ford Motors at $3 and sold them at $4. I bought them again at $3.50 and sold them at $4.50 each time chalking up a $100 gain. My portfolio which had dropped dramatically stalled and then began to climb slowly. I quit my advisory service and started reading the papers, buying and selling on educated tips. My system worked fine.

This entry was posted on Friday, March 26th, 2010 at 9:42 am and is filed under Economy, Finance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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