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Having Reasonable Expectations in Your Investing

Tan KW
Publish date: Mon, 01 Jul 2013, 05:40 PM
Tan KW
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Good.

 

 

Unreasonable expectations of how your portfolio should perform can lead to poor decisions, such as taking more risk to make up the difference  between your expectations and reality.

What is an unreasonable expectation?

1.  Expecting to gain 25 percent per year when the broader market is returning 8% is unreasonable.

2.  Expecting your portfolio to not fall when the market is down 35% is unreasonable.

3.  When investors fall behind in reaching financial goals, the temptation is to become more aggressive, which leads to unreasonable expectations.  If you choose more risky stocks (young technology companies, for example), you may have some winners that will help make up lost ground, but the odds are higher that you will simply fall farther behind.  The stock market and the economy don't care about your goals or investment choices.  They move due to a variety of actors and will go up or down with no regard to your plans.


What is a reasonable expectation of portfolio performance?

It depends.

1.  If your stocks are more heavily weighted toward growth, it is not unreasonable to expect to do better than an index of the broader market that is more heavily weighted toward growth.

2.  When the market is rising, your portfolio should also rise (and perhaps a little faster) and when the market falls, your portfolio should not drop as far or as fast.  That's the best you can hope for and if you hit, it, you are ahead of the game.
 

 

http://myinvestingnotes.blogspot.com/2013/07/having-reasonable-expectations-in-your.html

Discussions
Be the first to like this. Showing 2 of 2 comments

Micheal Teo

Pretty logical n rasional argument of ur purview regarding stockmarket investment. I set a target to outperform bank or bond teturns fr. Bursa in my portfolio of stocks.

2013-07-01 22:28

bsngpg

My Return so far in Bursa :
A rough estimation shows that 80% of the time I have a negative paper return in Bursa. Even I finally enjoy a positive paper return at the current long lasting Bull, it is still at a shamefully lower than saving interest from bank. It is undeniable that my big losses at the early years pull down the overall return. Nevertheless it is very lucky to recover at the latest few years after switching most of the holding to more established counters such as CIMB, Mbb, LPI, Mahsing, Genting, Zhulian. I believe some other investors going thru the similar path as mine, playing lots of second and third liners with exciting illusion especially during the bull market. And the cruel fact is that the hardly earned tiny profit was swiped away a long with a big cut on the self capital by the unexpected Bear at anytime.

So, my advice is that please strip off any illusion that share market can make your rich or give you easy money. I know that most of the people will not sense and agree with this point at the current Bull market, but please be reminded that Bear can be there at anytime without any notice. Never and never and never think that you are smart in calculating the value, forecasting or interpreting trend, there is hardly anybody can beat the broad market when the bloody Bear massacres.

In fact I am psychologically ready at any times to loss 30% from the current holding. On the bright side (or maybe an illusion again), I am “hoping” to earn 5% annual return since inception on the entire portfolio from the current Bull (if only god bless). However I have confident that I will have 10% annual return in the next Bull which maybe 5-10 years later.

Thank you

2013-10-12 17:44

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