Had enough yet? Well, you're not alone.
Legions of investors, rattled by the extreme volatility of the Nasdaq Stock Market 100 index since its March peak and by six interest rate increases in the past 12 months from the U.S. Federal Reserve Board, are having some real doubts about the fund choices they've been making.
But, since you can't really do much until Monday, why not take a moment to reflect on just how you got here in the first place. Thanks to research into behavioural finance, here's what we know about ourselves as investors.
We're shortsighted.
Labelled myopic risk aversion, this tendency leads investors to overemphasize the potential loss over one year while overlooking the potential profits visible over the long term. Fear is the greatest embezzler. Don't let your investment decisions be driven by the size of the headlines.
We're overconfident.
Not just in our own abilities but in the accuracy of the information we receive. Psychologists call this thought contagion and use it to explain how ideas get transmitted and why they gain such force the more they circulate.
This may explain health and diet fads and it certainly demonstrates why so many investors fell in love with technology stocks.
People who used the Internet a lot were easily excited by its potential, and acted on wild notions with their investment dollars. They'd e-mail each other or post chat-room opinions about the latest hot stock. Next thing you know, the money was pouring in.
But too few investors seem to be able to distinguish between "greaterfool.com" or "sendmemoney.com" and sustainable businesses. Funds, while they often take some flyers and certainly end up with some dogs, tend to have a few more of the latter.
We buy what's familiar.
Believing that investors need to feel comfortable with where they invest their money, an interesting Columbia University study took a look at the stock-ownership records of the seven regional Bell companies in the United States. It found that in all but one state, more people hold shares of the local utility than any other, and their holdings were nearly twice as large as those investors who don't stick with the local provider.
Plainly, all of those investors can't be right. Everyone's local telco can't be a better investment choice than any of the other six. There's definitely more to the market than Nortel Networks, and diversified funds -- which have lagged big time -- will reflect this.
We're not all women.
A recent University of California paper sorted the investment activity of 35,000 households according to whether the primary account holder was single or married, and male or female.
According to their findings, single men are the worst investors going. More importantly, whether married or single, women outperformed their male counterparts by more than 1 per cent a year. Men are more prone than women to overconfidence, the study suggests, and this leads to costly and excessive trading with men turning over their portfolios half as much again as women.
We trade too often.
So much so, suggests a recent study by the North American Securities Administrators Association, that it's a wonder some of us have any money at all.
Looking at the records of a Massachusetts day-trading firm under investigation for not adequately monitoring its clients, they found that the average account had a turnover factor of close to 300 per cent, losing 56 per cent of its capital to commissions alone. Only 11 per cent of the accounts studied were in the black at all.
Making money through frequent switching is tough to do. When traffic is clogged up, drivers often look enviously at the lane beside them because it appears to be moving so much faster. One reason for the mistaken perception is that the cars a driver passes quickly recede on the horizon. In contrast, the cars that overtake us remain stubbornly in view, accentuating our predicament.
Gordon Powers heads up Affinity Group, an Ottawa financial services consulting firm. He can reached
at gordpowers@aol.com