Chasing Returns

Chasing Returns

A favorite (and costly) pastime of investors is to invest in assets that have recently done well. This happens in good times as investors seek better returns, and they happen in bad times as low-yielding investments such as cash are more attractive than money-losing stocks.

In other words, investors chase returns.

It Feels Good

By investing in what just did well, investors are systematically buying after they witness gains elsewhere and selling after their assets experience loss.

Chasing returns can feel very good at the time but comes with a real financial cost. Namely, paying higher and higher prices for assets leading to lower expected returns over time.

Why We Chase Returns

There are two primary reasons it feels right to buy after we witness gains and sell after experiencing losses:

  1. We are greatly influenced by what just happened. Whenever we try to project the future, our brains are significantly influenced by what just happened. Good outcomes today implies that things will be good going forward, and vice versa.
  1. This is exacerbated by the narrative of the day. Our brains love a good story. We seek information to understand. When the market goes up, the narrative is often positive, leading us to feel good about the future. When the market goes down, the narrative is almost always negative, reinforcing a negative outlook.

Normal, But Not Beneficial

It is completely normal to invest in things we expect to go up and avoid assets we expect will go down. In fact, any rational person would do that as part of their investment strategy.

But the problem is that markets move quickly and often surprisingly. Narratives are wonderful and can be quite accurate in hindsight. They can even increase our confidence in a certain viewpoint, but narratives offer no predictive ability in future outcomes.

This is why we remain disciplined to your plan and stay focused on what we can control. I recognize this is not easy; temptations abound that are pleasing to our mind and feelings. But that is why you have me.

Together, we can be aware of common investment pitfalls and ensure that all investment decisions are well-thought and in line with your stated objectives.

– Kaleb Paddock, CFP®

Learn More

You can learn more about Ten Talents and Kaleb Paddock, a financial advisor based in Parker, Colorado, by clicking here.

Kaleb can be reached at (720) 710-0939 or kaleb@tentalentsfp.com.

You can check out the Ten Talents YouTube channel by clicking here.

About Kaleb

Hi, I’m Kaleb. and I’m the Founder of Ten Talents. I’m blessed to be regularly featured in CNBC, MONEY, and Business Insider personal finance articles. I’m a CERTIFIED FINANCIAL PLANNER™ (CFP®) Professional based in Parker, Colorado and I’m a fiduciary and fee-only advisor.

Put simply, this means that I don’t sell you financial products. I act in your best interest at all times. And my pricing is clear and easy to understand.

My Client are Eyeing Retirement Decisions

My clients are eyeing retirement decisions, often work at technology companies, or have experienced a sudden money event (inheritance, home sale, business sale, stock IPO, gift).

I love bringing confidence and clarity to your financial situation and I’m passionate about helping you take control of your financial future.

You can learn more about me and Ten Talents by visiting my website: www.tentalentsfp.com.

©2022 The Behavioral Finance Network.

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