The dog and his reflection

by / Tuesday, 07 May 2019 / Published in Aftree Beplanning

Simple stories, timeless lessons…



The dog and his reflection | Greed can lead to costly, foolish behaviour



A dog was crossing a plank bridge over a stream with a piece of
meat in his mouth when he happened to see his own reflection
in the water. He thought it was another dog with a piece of meat
twice as big; so he let go his own and flew at the other dog to
get the larger piece. But, of course, all that happened was that
he got neither; for one was only a shadow, and the other was
carried away by the current.


Our human instincts dictate responses to the market and investing which can sometimes let us down. As with the dog in the fable, greed is one of the main drivers of the biggest behavioural mistakes we make when it comes to investing.
Basing investment decisions on past performance is a common mistake many investors make. The search for the best asset manager consumes a lot of time as most investors anxiously compare their investments against what their peers are doing.

Investors whose portfolios are not invested with the best performing asset managers experience regret and anxiety when comparing their portfolios against the top ones. Despite the numerous warnings on the dangers of investing our money based on past performance, investors are still easily tempted to switch to the next best thing. This propensity to buy high and sell low is almost unavoidable and ultimately leads to disappointing outcomes.
The table below shows how asset managers’ relative performance differs year-on-year. The old disclaimer “past investment performance is no guarantee of future investment performance” is there for a reason.

The success of an investment strategy is not measured in terms of beating benchmarks but rather the ability to deliver desired investment outcomes, with no nasty surprises. Stick to an investment strategy that is tied to your needs and expectations, and not your emotions. Most importantly, avoid being tempted to switch to last year’s top-performing manager or asset class.

Source: Alexander Forbes