How does an investor measure success?
Success is often difficult to determine and many use a measurement based solely on absolute returns although all investors seek positive returns in abundant forms. It’s no mystery that the behaviour of investors follows similar cycles seen over and over in both boom and bust segments of market ups and downs and investors for the most part attempt to avoid these cycles only to find themselves frequently falling into a market mentality and accepting the status quo for returns.
I had an opportunity again to watch a video I had seen before at a nursing seminar that discusses what different influences affect our decisions and specifically asks the questions, “What does it take to get people to change?“; especially when you consider that changing behaviour is extremely difficult.
The video is by VitalSmarts and is titled “All Washed Up”. The main purpose of the video is to show how difficult it is to influence kids to wash their hands even when presenting different sources of motivation to change behaviour.
The video discusses the premise that combining four of more sources of influence helps your chances of success by as much as ten times. While using hand washing in kids seems to be a fairly elementary exercise the application to successful investing in my view was very straight forward. As the video points out we often underwhelm overwhelming problems; we try a couple of things and when things don’t work out as planned we give up and move on to something else.
Investors act in a very similar fashion when faced with what seems to be an overwhelming task; managing their portfolios and investments. Investors, especially new ones, try multiple strategies, investment products and look for success in too short of a time period before moving on to something else or different.
We read about the importance of staying invested, lower our costs (fees/commissions), sticking to a long-term plan or investment strategy and avoid emotional investing (market timing) but rarely utilize sources of influence the help us remain committed or focused on a task(s) that historically have a greater level of success.
When you look at some of the sources of influence from the video it’s not difficult to see where investors succeed and why when they combine four or more sources of influence into their investing approach.
Personal motivation is often found in when written out properly in an investment policy statement or with short-term and long-term goals and objectives. A change in environment can provide a refreshing break for an investor who concentrates too narrowly on a specific market or strategy. Deliberate practice can be used successfully with repeating the same activities over and over again the have proven to be successful for investors for decades. Finally peer pressure or social motivation is often the main driver found in online discussion forums related to investing where ideas, practices and advice are given out within a community of peers for shared knowledge.
I found the video interesting enough that I found myself looking at my own investing practices/strategies to see where improvements can be made in my own sources of influence and that, for any investor, is part of the constant self evaluation that you need to perform to become a better and more successfuly investor.