(from Carl Richards’ 6/22/2015 Behavior Gap newsletter – click here for the original post. Carl is a Certified Financial Planner, the creator of the New York Times’ Sketch Guy column and director of investor education at the BAM Alliance. His book, “The Behavior Gap,” was published last year. His sketches and more can be found here. Follow Carl on Twitter @behaviorgap)
Anyone who knows me, knows how much I love spending time outdoors. If there was a way to write a book while riding my mountain bike, I’d be the guy doing it. But one outdoor activity has surprised me a bit. I’ve really enjoyed the times I’ve gone fly fishing. Unlike my other outdoor sports, I’m not really “doing” anything, but there’s something incredibly relaxing about standing in a river and casting a line.
Like any good fisherman, I’ve got my share of tales. Somehow, the fish I caught in one story becomes a little bit bigger with each telling. Somehow, the fish that got away just happens to be a record breaker.
And I realized recently that fishing and investing share more in common than you might think.
For instance, I’ve yet to meet anyone who fishes that doesn’t have a personal secret or two. It might be the location of a really great stretch of river. It might be the perfect fly that gets the fish every time. Whatever the secret, it gets guarded closely.
The same holds true for investors. They might have a strategy for how to pick the “perfect” investment. Or it could be secret formula for how to time the market.
Along with our secrets, we like to share with others how our method of doing, be it fishing or investing, guarantees success every time. This leads to “Remember when I caught that huge fish?” stories. For investors, it’s “Remember when I earned that huge return?”
The problem with either story comes back to the same issue: We’re human. What we’re told happened isn’t necessarily what really happened. Chalk it up to bad memories or a subconscious desire to impress others, sometimes that stories we share leave things out or gloss over details.
For example, we may hear that someone got a huge return on an investment, but what we don’t hear is that the investment lost 75 percent of its value before coming back 50 percent. All we hear is that the return was 50 percent. If we aren’t careful, it might be tempting to assume that if we just picked the “right” investment, we could earn 50 percent, too. After all, “that guy” did, why not you?
See the problem with listening to investing tales?
When it comes to investing, our focus doesn’t need to be on anyone else. It needs to be on our goals and where we want to go. I can listen to fishing tales all day long, and the worst thing that will happen is I might spend a little more time hunting for a perfect spot or testing out a new fly. But investing tales tempt us to make huge leaps we wouldn’t otherwise make without recognizing the full cost if we fall short.
So by all means, listen to “that guy” if he wants to tell you all about his latest catch, but run as fast as you can if you should hear, “I’m earning a huge return! You can too if…”