Anatomy of the Unsuccessful Investor

(Editor's Note: Paul Schatz, President of Heritage Capital, LLC, in Woodbridge, will be contributing to Fi$callyFit every Friday. Read his biography here)


Last week, I posted the link to a Very Short Survey asking your opinion on a number of “hot” topics. So far, the answers are very interesting, but I’d like more responses before I share the results and offer some comments. If you haven’t clicked on the link above, please do so and I will use next week’s piece to discuss the results.

Turning to this week’s topic, I have often been asked what makes one investor more successful than another investor. Is it education? Is it street smarts? Is it luck? Is it just part of one’s personality? The short and easy answer is that it’s probably all of the above. But after 22 years in the business, I’ve noticed that personality definitely is a significant element in the equation.

When I first began trading and investing my own money in the 1980s, I made the same mistake that most people commonly make. That is, I tended to buy what was already known to be hot and sold what was already depressed and cold. In very strongly trending markets, which don’t happen very often, that works great. 2009, 2003, 1999 and 1995 are a few textbook examples.


But after a few “lean” periods, I realized that there had to be a better way to make money. Over the years, I’ve found that once you find a successful, time-tested strategy that works well in different market climates, the best time to invest or add money is during one of those periods when it hits a pothole. Please note that just because a strategy works well in all environments doesn’t mean it will be profitable in all environments!

Of the 9 investment programs we now run at Heritage Capital, I’ve learned that the most successful clients are the ones who either fund a new strategy when that program is losing money or add money during that time. It’s easy to watch a program have a great month or quarter or year and then plow into it. But it’s much more difficult to write a big check when something that’s been a stellar performer suddenly hits a pocket of weakness.

Changing gears a bit, I have a lifelong friend (true story), The Unsuccessful Investor (TUI). Many years ago after reconnecting, he mentioned how he oversees a number of trust accounts as well as invests his own family’s money and wanted to learn more about what we were doing. We met and spent a few hours going over each investment program’s nut and bolts along with daily, weekly, monthly and annual performance.

TUI was convinced he wanted to engage us to manage the majority of his assets since he was unhappy with what he was currently doing. At that time (2006-2007), he chose the two strategies that had just seen their best performance period ever. After sending the necessary paperwork, TUI called to say that while he was still planning on hiring us, he wanted to wait a little while until his current holdings “caught up with the market” and he made “some good money”.

As 2007 was ending, I contacted TUI for an update on his plans, at which time he explained that he finally made some “good money” in September and October 2007 and wanted to give the portfolios some more time to make money. In mid 2008, we spoke again after stocks saw corrections in January and again in March (Bear Stearns collapse). TUI said his portfolios got “hit pretty hard” and he really needed to get us involved before any more damage was done.

By the time we met again during the fall of 2008, TUI despondently moped that all the portfolios were “on life support” and it didn’t make much sense to move them now. He told me that we should talk again after they “bounce a little”. In May of 2009, TUI and I had lunch. The stock market finished March strongly and soared in April and May. I told TUI that it was as good a time as any to make the move, especially since he had wanted to engage us years ago and his procrastination cost him an enormous amount of money.

As I am sure you can predict, TUI said he was “oh so close” to signing the papers and taking the portfolios in a new direction. Finally, towards the end of 2009, I called TUI to say “enough is enough”. It’s been three years and it’s decision time. Let’s either move ahead as planned or stop pretending and wasting each other’s time. In true TUI fashion, he said that the portfolios were now making a lot of money and there was no need to make any changes.

People like TUI will never be good investors. They are paralyzed by nature and terrified to actually execute. I can spot them the minute they sit down in my office for the initial consultation.

Personality is very powerful in determining your ability to succeeding in investing. The faster you can figure out what type of investor you are, the better off you will be over the long-term.

Please feel free to email me with any questions or comments at Paul@investfortomorrow.com.

Until next time…

Paul Schatz

Heritage Capital LLC
http://www.investfortomorrow.com/