Players get a rush from the action—making bets, taking chances, expecting the big score. You find them at the track, in the casinos and playing the stock market. They scan the pink sheets like the daily racing forms. They’ve convinced themselves that they are in the ‘know’. The life of a player is fueled by adrenaline and stoked by the glitz, the bang, the excitement. It’s a big win/big lose way to live.
If you talk to the player, they’ll tell you about their wins in the greatest detail, but study the scuff on their shoe when you ask about losses. Losses are just the cost of the wins. Except for a rare few, the losers far outnumber the winners. And—unless they have a substantial income to back up their habit—they are a bad market and a banana peel away from disaster.
The planners might not know everything, but they know they are not players. The pain of losing outstrips the pleasure of wins and adrenaline is not their drug of choice. The planner sees life through a more measured perspective. Their values aren’t centered around the “rush” but around moving their mission forward.
The planner might even pony up $5 when the Powerball reaches enormous numbers, more out of social obligation than because they hold any expectation of hitting it. Their focus is on the big picture, rather than the short term score: managing cash flow, saving for retirement, stashing money away for education and making sure their family is protected with proper risk management and an estate plan.
While the player is turned on by action, the planner finds satisfaction in knowing that she is working methodically towards financial security. When the player hits, they score big and reinforce their belief in their invincibility. The planner could no more tolerate the player’s high stakes game than they could fly. It’s just in each of their DNA.
Yet we only admire and respect the player. Take the huge stakes and TV ratings for the World Series of Poker and other big win/big lose events. They stoke the gambler hormones in each of us.
The problem is that since you only hear about the wins, it appears that there is a magic decoder ring that will bring unimagined riches if you can only get your hands on it. The fact is, there is no secret or magic and the risks for most far outstrip the rewards.
In the case of the stock market, the proof is readily evident in the most recent Dalbar study that shows—once again—that the average investor does not beat or even meet the indexes. In 2014, the average equity mutual fund investor underperformed the S&P 500 by a wide margin of 8.19% and the average fixed income mutual fund investor underperformed the Barclays Aggregate Bond Index by 4.81%.
This is not new. The story is the same in the 3, 5, 10, 20 and 30-year analysis. In fact, the consumer average return on equity funds over 30 years is 3.79% vs. the S&P at 11.06%. What does that tell you?
Investor behavior is a significant reason why these huge disparities exist:
Investors buy when the markets are at all time highs and sell when markets are tumbling.
Investors buy the winners and shun the losers, not realizing that today’s losers might very well be tomorrow’s winners.
Investors read and listen to the “experts” and believe what the media tells them.
Consider what winning is all about. If you’re a player, it’s the big score. But if you are a planner, you know the score. You don’t follow the herd, you don’t give in to irrational fears and you don’t get your satisfaction from the adrenaline rush of gambling on your future. The planner’s money mindset is about the big picture, the long-term and the values of financial security. So where are you, getting on track or on your way to it?