Most investors’ problem is concept and psychology, not stock selection


Table of Contents

The reason to post this article

Because of publishing books and blogging, I have the opportunity to reach a wider range of investment friends. I have benefited a lot from it, and I am also grateful to many investors who are willing to share their investment stories with me. Of course, I also found some common characteristics of investment friends.

Among them, what I can’t wait to mention first and share with my investment friends is that “most investors’ problems are simple concepts and psychological factors, not stock selection.” In order to prevent you from misunderstanding my wording, the so-called “problem” here is a neutral term without any negative meaning. Because I can’t find an appropriate terms to express troubles, myths, hesitation, difficulties… etc. And each of us will have these problems on the investment road, so there is nothing to avoid.


I personally think that “most investors’ problems are simple concepts and psychological factors, not stock selection”. The reasons are as follows:

  • Psychology, concepts, traits, patience, discipline, and mentality are all invisible things. They are difficult to measure and cannot be quantified, but they are easily overlooked. But these are the key factors that determine the success or failure of an investment. Rather than the origin, IQ, funding, occupation, socioeconomic status, and education level that ordinary people think, but because these factors are more “seen” by ordinary people, they will be valued. Please refer to my another blog post “Time discipline and patience are the three elements of successful investment“.
  • Investment is a typical “knowing easy and hard to do” thing. Discipline is the key factor that determines the success of investment.
  • Not all people are suitable for investing in the stock market, but due to the low entry barrier for stock market investment, “most people” do not believe this sentence. To be more precise, most people are destined to find it hard to make a lot of money from stock market investment; because traits and psychological quality are the fundamental factors that determine the success of investment.
  • Investment is an extremely subjective behavior, with very low barriers to entry, and it is a professional job that is really difficult to succeed. But precisely because of the low threshold, many illusory dreams of getting rich have been created. The result is that most of the investors don’t want to put in their efforts. They spend all their time thinking about how to find cards, take shortcuts, find formulas, look at line graphs, guess market highs and lows, swing trading, calculate chips, and spend their energy on these. The seemingly clever side-by-side approach has long been proven to be a so-called technique that does not substantially help long-term investment and making big money in the stock market. The average investor is unwilling to spend a lot of time understanding the basic operation content of the company, just because it is boring, it takes too much effort and it is really difficult to thoroughly understand the operation of the company. I have a basis for saying this (Munger also talked about similar phenomena), because no one has ever made a lot of money in the stock market by relying on these so-called investment techniques. This is also the fundamental reason why most investors can’t make money in their lifetime. You can refer to my other blog post “Investing many years and earning small, can it be improved?“, my discussion on this phenomenon.
  • As Buffett said, people have an inexplicably strange behavior pattern ───the tendency to complicate things that are simple or understandable. Obviously knowing that the investment methods that are well-known and admired by investment masters have been verified, polite or persuasive, simple and almost certainly successful investment methods can be used to get rich. But it is strange to say, but very few people are willing to follow suit. Instead, most people do everything possible to find many investment methods that are complicated, unverifiable, or proven to be ineffective for long-term investment and wealth. If you go back and read the previous paragraph carefully, human behavior turns out to be so illogical. Yes, from this we can see how complex human nature is, and why most people cannot get rich by investing.
  • People overemphasize the importance of science and numbers in investment, as I mentioned in the book “The Rules of Super Growth Stocks Investing”, Chapter 1. Investment is a science in the economic field under sociology, which is more related to humanities; it is not a science in natural disciplines such as physics, mathematics, engineering, etc., which can be verified repeatedly with mathematical formulas, 100% identical, same, and correct answers.
  • As I mentioned in the book “The Rules of Super Growth Stocks Investing” on section 1-4, we compare with people a few generations ago, we are becoming more and more impatient (the advancement of technology is one of the major prime culprit). Most people are taking risks to get rich, finding irritate shortcuts, chase touted stocks, wanting to get rich overnight, or not the sound investment method that has been proven by many successful investors – in short, no one want to get rich slowly.
  • People are becoming less and less willing to think. Because of the advancement of technology and the development of media communication, we are in an era of information explosion, full of overloaded information. But because of the easy access to information, this has also led us to become more and more accustomed to “being fed” (please note that these words are passive) a large amount of information (and even a large amount of incorrect information that has been modified without knowing it). Investors are more likely to be manipulated and become leeks than in the past. Rather than “get it by yourself” (these words are active). The difference between active and passive is the most basic thinking difference-the result is that people are increasingly reluctant to think independently (independent thinking is the basic work necessary for successful investors), and the homogeneity of thinking becomes more common. It’s getting worse. When your thinking and opinions are the same as everyone else, the best case is to get the performance of the market (usually it will be worse, because a bunch of invisible or visible commissions, handling fees, taxes, bid-offer spreads, etc. are deducted; plus the intangible cost of your mental effort). You can refer to my other tribal article “Why the successful skills needed for stock investment is opposite of successful workplace skills?“, in-depth discussion on this issue.
  • Because most of the financial media we have come into contact with (including television, online communities, electronic or paper media, books, and magazines), when they mention or discuss stock market investment, they emphasize stock prices and sensationalism in order to attract readers. The story of soaring stocks and short-term wealth. In the final analysis, without discussing these eye-catching themes, the media cannot gain the favor of the audience, and they cannot survive. These media will consume a lot of modern people’s time. Not only are they addictive, some of them will instill the wrong investment knowledge.
  • We have been brainwashed financial education or indoctrinated knowledge since childhood, or the concepts that people think are common sense or consensus, many of which are actually not very correct. But because people have inertia, it is extremely difficult to change; and the older you are, the more difficult it is, and the higher the cost.
  • In our formal education system, financial management or investment has never been listed as a compulsory course. Almost everyone can only learn and explore this knowledge by themselves.
  • I have discussed with several people in the publishing industry and financial writers why there are so few financial books discussing this aspect in the market. The reason is simple, because the market is very poor, no reader wants to read this kind of book, because there is no story, everyone basically ignores its importance. Books that no one reads, of course you will lose money if you publish them! This proves that the masses are actually very blind, and they don’t pay attention to important things.

Everyone ignore a very important thing

Everyone has forgotten a very important thing. Long-term investigations by several well-known financial institutions:

  • Consistent long-term research by many institutions, including Bank of America (ticker: BAC), indicates that only 25% of equity fund managers outperform the broader market.
  • According to the statistics of Morningstar Direct under Morningstar (ticker: MORN) in 2021, the performance of active US stock funds lagged the market by more than 85%.
  • The latest report from S&P Dow Jones Indices (ticker: SPGI) shows that more than 79% of active mutual fund managers will perform worse than the S&P 500 and Dow in 2021.
  • The S&P Indices Versus Active (SPIVA) scorecard, which tracks the performance of active funds, with year 2023’s data showing that 79% of fund managers will underperform U.S. stocks in 2022, up from 42% a decade ago.

That is, if you use the no-brainer investment method to track the S&P 500 ETF that represents the U.S. stock market, you will be invincible and guaranteed to beat more than 75% of U.S. stock fund managers every year.

The consequences

But the important thing is that the consequences and impact will be great because of this:

  • Psychology, concepts, personality, patience, discipline, and mentality; determine the general direction and principles of your investment career, that is, they determine whether you can succeed or fail in your investment career, whether you can make money or not. The general direction is wrong. On the wrong track, you are unlikely to hold stocks that will make you rich in the long term.
  • If the investor’s fundamental starting point is not very correct, no matter how hard he tries in the future, it may be an unsatisfactory result. In the future, if you find that you need to make corrections after you wake up, it will take a lot of work and cost a lot of money. The point is that the later the correction will become more difficult and the effect will be worse. What is not worth doing is useless no matter how good it is.
  • Most people still believe in the bottom of their hearts that the stock market is a place to make quick money, believing that you can get rich quickly by looking around for probing cards or inside information. Or for the behaviors of many typical retail investors that have nothing to do with your long-term investment career, waste your efforts and miss the biggest catalyst “time” for investment. Everyone knows that investment is no different from all the jobs and careers engaged in in life. It takes a lot of effort and time to succeed. There is no other way to increase the probability of investment success. You have to understand the subject of your investment. The more detailed the better, the deeper the better. And the amount of money you can make is absolutely proportional to the effort you put in. There is no free lunch in the world, and this sentence is also valid on the road of investment.
  • Long-term investment is the biggest advantage of investing in the stock market, and as long as you insist on long-term investment, coupled with the correct concept of stock market investment, investors can almost get rich. However, due to various factors, most investors are willing to adopt long-term investment methods. This is why it is difficult for most people to “make a lot of money” in the stock market. For this reason, I wrote a blog article “Why long-term investment? “.
  • Even if you don’t have the time or understand (maybe due to various factors such as time, ability, unwillingness, don’t want, ability circle, etc.) to choose your own stocks, as long as you buy an ETF that tracks the market and hold it for a long time, it’s a no-brainer way everyone knows can make money (if you doubt the previous paragraph, then it is really serious). However, this is a well-known way of making money, but there are not many people who are willing to implement it. There are only a few reasons-because it is boring, the return rate is lower than that of stocks, and the wrong expectation just wants to get rich overnight. Most people expect the hottest technology or biotech stocks that can be spoken out at family and friends gatherings. Everyone is interested in soaring stocks that can rise by more than 100% annually, and has no interest in ETFs with an annualized return of 7-8% (the S&P 500 has paid 7.51% in the past 25 years). Most people don’t want to hear the truth at all. ───First: Investors can’t have an annualized rate of return of more than 100% every year in a row. At least I have read nearly a thousand books and 27 years of investment experience. Second: “Investors should pay attention to the annualized investment rate of return (IRR), How to calculate?“, rather than seeking to have an investment rate of more than 100% every year or to chase for touted stocks, because these are impossible to happen, all typical wrong expectation.
  • The correct concept of stock market investment does not mean that it is a complicated concept. On the contrary, many correct stock market investment concepts are very simple and easy to understand. This is the fundamental reason why many so-called investment experts grasp this habit of people and often like to quote academic theories, or pop up a bunch of terms that ordinary people do not understand, or deliberately display calculation formulas or algorithms – The more incomprehensible the audience is, the easier it is to be fooled.
  • The simpler the investment principle, the easier it will be to implement, and it will last for a long time. The more complex things, the higher the chance of error.
  • For example, buying low and selling high is the eternal truth of stock market investment. Even if you don’t understand any investment theory, you don’t often follow the stock market dynamics every day; but the stock market crashes once every ten years (there will be multiple market corrections and declines in the middle), you may not be ignorant. As long as you enter the market at this time, the profit guarantee will be very substantial. However, what most people do at this time is to sell out the stocks and leave the market. The investment logic is very simple, but few people are willing to execute it; many investment masters have done this kind of thing, and they enter the market to pick up the bargain when they fall sharply. (For example, the stories of Buffett, Jim Rogers, Templeton, etc.), which is why their investment can be successful.

An easy-to-understand example

The content we discussed above does not involve selecting individual stocks or mentioning which stocks must be bought, and it has nothing to do with the ability circle; but the two stock market investment methods provided (investment ETF tracking broad market, bought during the crash), is very simple, does not require esoteric theory, and everyone understands it; as long as you are a long-term investor, it can almost make a lot of money. But the truth is extremely cruel, and in comparison, there will always be a minority of people willing to do so.

This is why Buffett said: “Investment is simple, but not easy.”


Closing words

“What is not worth doing, no matter how good it is, it is futile.” Like Buffett said: “That which is not worth doing at all is not worth doing well.”

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