Beware of tinkering

You will no doubt have heard me say that an investment strategy needs to be established and then followed. No tinkering!

I’m afraid I am going to repeat myself. “Oh, that old chestnut” you may well think; well yes, but with a twist at the end.

I recently had lunch with a longstanding friend who held an investment portfolio managed by one of the major stockbroking firms. Over lunch he recounted an occasion when the investment market was particularly volatile, and he decided that a meeting with his stockbroker would be appropriate. He happened to mention this to his CEO, a close and wealthy friend as well as a captain of industry, who cautioned him: “There is nothing that loses money more than a meeting with your Stockbroker!”

His CEO’s underlying point was that investors like to fiddle. When the market gets a little difficult, as we saw briefly at the start of the year, there is nothing more satisfying for some than making a few adjustments.

Of course, the Stockbroker will know this. Why try and dissuade an investor if they are determined to make a few changes seeking solace in “doing something”? Especially if the stockbroker happens to make a few quid along the way. The client will leave, happy at least for the time being. But these decisions will be based on the emotion of the moment, not evidence. And we know, investment strategy is a strategy not a tactical dance. Emotions do not help.

So, the golden rule is not to tinker. But undertake proper planning, by working towards agreed objectives and investing based on sound principles.

A hidden twist

There’s another unseen danger lurking too; the ambiance of our surrounding environment. Why?  Because it influences our investment decisions.

If we feel up beat, we are more likely to make positive decisions. The reverse is also true.

Take the current political environment. It worries many folk, naturally making them feel more cautious. In turn that affects investment decisions, which are likely to be made with greater caution. This isn’t something we are necessarily conscious of, but it certainly affects our decision-making process leading to different outcomes depending our state of mind.

The moral of this brief tale? Emotion and inconsistent decision making hinder rather than improve investment returns. We must be aware of these threats and avoid letting them influence our day to day decisions.