We all know what it takes to make a successful investor: diversification and holding for the long-term. So why do so many investors insist upon diverting from that game plan?
One big reason, according to Morningstar's Russel Kinnel, is that buying and selling fills an investor's void of not having control over returns. They often think, in other words, that since they don't have control over their returns, they might as well have control over trading.
Greed and envy are two other sins, Kinnel offers. Oftentimes investors become jealous when they learn of the success of others, or they read someone else's good news, and dive into what might be a hot sector and disregarding all logic in the process.
Kinnel also points out that gambling addicts are known to become addicted after winning big, and he ponders whether many investors might react the same.
So Kinnel tells investors that if they want to feel empowered remain on track, do some research. Looks for funds with very little turnover in terms of portfolio management. Firms like Dodge & Cox, American, Davis Selected, Primecap, and Wellington all do well because their managers usually stick around their entire career, he observed.
Kinnel also recommends choosing low cost funds and developing realistic performance goals.
He concludes with the testimonial of his own portfolio. Kinnel's portfolio is designed so that very little happens, and last year he only made one trade. The bottom line is that his long-term prospects are just as good as they were a year ago, and he expects they will be just as good ten years from now.