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It’s always interesting to read the financial press this time of year. You can find a prediction to support whatever your gut feeling is about the future direction of the stock market. Tucked into this month’s Money Magazine amongst articles profiling the hottest mutual fund managers, and why investing in gold is a fool’s errand, is an excerpt from The Elements of Investing by Burton G. Malkiel and Charles D. Ellis. It caught my eye because Dimensional Fund Advisors (DFA), whose mutual funds we use in our client portfolios, utilizes the research of both of these gentlemen to guide their approach to investing.

The article is entitled “Dodge the 6 Biggest Investing Mistakes” and in each area, I see clients struggle to overcome these mistakes so that they will be successful long term investors.


“We tend to be overconfident. If we do make a successful investment, we confuse luck with skill.”

All of us want to be able to brag to our friends that we identified the next hot stock before anyone else due to our superior stock picking ability. In reality, most times a lucky pick can turn into a disaster when confused with skill that can be relied upon in the future.

Following the Herd

“Just as contagious euphoria leads investors to take greater and greater risks, the same self-destructive behavior leads many to sell at the market’s bottom when pessimism is rampant.”

During the past twenty years I have talked many clients out of doing the exact opposite of what they should. We all know that buying low and selling high is the way to investing success, but unfortunately, our gut, along with the popular press and our friends and relatives, often leads us in the wrong direction.

Timing the Market

“The average investor’s actual returns are at least two percentage points lower (than the stock market as a whole) because the money tends to come in at or near the top and out at or near the bottom.

I think that this is one of the areas that an advisor can add the most value to clients. It doesn’t matter if the market is going up or down, investors feel better when buying the winning asset class or stock and selling the loser. Convincing them that staying invested over the long run is the best path to reaching their financial goals can be challenging during a roaring bull or raging bear market.

Assuming More Control Than You Have

“There is no dependable way to predict the future movements of a stock’s price from its past wanderings.”

We all want to look for trends, whether it’s in the market’s movement in general, a particular stock’s price, or whether it is likely to split in future. Feeling as if we can spot these patterns gives us more sense of security than we really have. I continually see this when discussing the price of the stock of a company from where the client has retired.

Paying Too Much in Fees

“There is one piece of investment advice that, if you can follow it, can dependably increase your returns: Minimize your investment costs.”

The DFA funds are not available to the public and are passively managed, which both allow them to keep the costs within their funds a fraction of what the typical retail investor pays.

Trusting Stockbrokers

“The stockbroker’s real job is not to make money for you but to make money from you.”

The advantage of working with an independent, fee only investment advisor is that there is no incentive from a brokerage firm to recommend trades or products which can be hazardous to the client’s wealth.

Investors that are able to overcome these mistakes and focus on their long terms goals despite the short term fluctuations of the stock market and the constant barrage from the media enticing them to do the exact opposite, are more likely to have a successful investing experience.

Chris Carleton, CFP®