There is nothing like investing when it comes to exposing yourself as a weak-minded gimboid.
I know all about buying stocks low and selling high. I understand the rationale behind Warren Buffett’s aphorism, “be fearful when others are greedy and greedy when others are fearful.”
Yet when my portfolio hits red, I fret. And when my return numbers glow green, I feel the pleasure centres in my brain light up like Vegas.
The uptick in fortune means it will cost me more every time I buy additional equities, of course. But hang the expense, I want to be a part of this now! The party’s on and I need to get my snout in the trough, quick.
And oh, the flesh is weak.
Only flesh and blood
You see I have long allowed myself a measure of freedom when investing – a certain amount of money to put into the market every year that isn’t dictated by the calendar.
Don’t get me wrong. This isn’t a gambler’s float, used to punt on some company that’s rumoured to be on the verge of discovering cancer-curing jam. I invest my discretionary dollop in index trackers. However I’m free to do so whenever I wish.
Sounds good? The snag is that in reality I’ve struggled to take the plunge when the market has. I haven’t always been brave enough to blow my ammo when equities were relatively cheap. I’ve held on and on until the upswings, and then got less for my money.
Oh, of course I had my excuses. My brain was on hand with plenty of self-justification every time to reassure me that reason was in control, not instinct:
- I was worried about my job.
- My company was restructuring.
- My monthly drip-feed was already casting cash into the cavernous cake hole of the capital markets.
- I better not throw in any more in case I’m axed – then I’ll need every penny.
But in reality the overweening fear of loss was in charge.
In fact, what this optional investing has taught me is that I am just one of the herd, a member of the cattle class.
I’m not special at all. I react and feel like everyone else who makes up the statistics that show this sort of irrational behaviour costs investors.
It takes willpower to overcome the apeman within. And there’s evidence that willpower is in limited supply for all of us. We can’t bank on having enough in reserve when we need it.
So the fewer decisions that are left up to my meat-bag of a brain the better.
Passive investing would be much easier if I could program a robot to handle it all for me and to physically prevent my continued interference, like some benevolent Dalek with a taser. Ah, a lazy investor’s dream of the future.
Given that I don’t expect Amazon to ship me my own automatic investing droid anytime soon, I have instead automated as much of the investing process as possible.
You see, the one human behaviour that does work for me is inertia:
- I don’t stop the broker’s direct debit that comes out of my bank account.
- I don’t mess with the regular investment scheme that funnels money straight to my chosen funds.
- I don’t take money out of lock-in schemes like ISAs, pensions and fixed-term bank accounts, where a cost is imposed upon me for doing so.
Inertia is the great human pacifier. It’s a force that’s regularly more powerful than fear in my world – especially if the fear is intangible like an investing loss.
Eliminate all carbon units
There are other weak points of human intervention that could yet scupper my plans.
I can fiddle with my asset allocation every time I choose the next fund to buy and, boy, what mischief I could get up to when it’s time to rebalance.
So far I have resisted the urge to keep thrashing my winners but it’s always taken a stiffening of resolve, and a quick prayer of deliverance to the passive investing gods.
Will I do the right thing in the future? I can’t say for sure. I’m regularly tested and I’m only a passive investor.
If you recognise these weaknesses, then you might consider trying one of the so-called robo-adviser services that have launched over the past few years. These can still be enablers when it comes to self-destructive fiddling though, and they can be relatively expensive.
Perhaps the closest proxy for a truly hands-off investing robot is the Vanguard LifeStrategy fund series.
LifeStrategy is an index-tracking, fund-of-funds with built-in rebalancing features – truly automatic investing. All you need do is pick the asset allocation of your choice, set-up a direct debit to keep it oiled, and then let the program run.
With this sort of investing the human being is taken off the table – which is the point of the exercise after all – and everything is left to the robot.
No more worries about pesky emotion.
Take it steady,