One of the things I’ve read in many investment books and articles is that you should create an investment plan, write it down if necessary and stick with it regardless of what happens in the markets. At this point I don’t have a finalized investment plan set in stone, but one of the negative investment behaviours that I’ve identified in my investment past is chasing returns.
Chasing returns usually refers to the activity of switching from a poorly performing (or average performing) investment into one that has an extraodinary recent return. This kind of investment philosophy is probably the quickest way into the poorhouse. It’s been proven in many studies that funds that perform very well in the short term rarely continue that success.
Last fall I purchased some units of a China mutual fund. At this point in time I was already on my way to becoming a low cost diy passive investor but for some reason I thought I should catch a short ride on the China express. As it turns out the fund actually went up about 20% over two months after I bought it which is a pretty incredible return. Towards the end of January this year I made the decision to sell the fund because I decided that the fund was too risky and was not the type of investment I wanted to own plus the reason I bought it was because I was chasing returns which I didn’t want to do anymore.
I figure that if I do the passive investing method properly then I could set myself up for a good retirement and I didn’t need to try for any home runs along the way. This new Canadian blog explains this baseball analogy much better than I ever could.
Since I sold the fund, it has bounced around quite a bit and currently stands at about 10% above where I sold it. In the past I would have been steamed that I had “lost out” on that 10% gains but now I honestly don’t care.
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