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How Humans Can Be Truly Terrible Investors

We Are Often Our Own Worst Enemy When It Comes to Investing

If you’ve done any reading about investing, you’ll have probably heard about legendary US fund manager, Peter Lynch. He ran the flagship Fidelity Magellan Fund between 1977 and 1990. This made him arguably the most famous fund manager in the world.


During his time, the fund produced an incredible annualised return of 29% p.a.




How much profit do you think the average investor in this fund made?



20% maybe?


Remarkably, the average investor somehow managed to LOSE money!


“How is that even possible”, you might ask?


It’s because investors are humans and act like humans, allowing fear and greed to dictate their decisions.


You might think that you’re a better than average investor, just like the 8 in 10 men who think they are better than average drivers.


The average investor consistently buys on the back of good performance and then sells when things aren’t going well.


“Buy high, sell low” is a formula that is guaranteed to lose you money.


Whilst it might be tempting to try to time the market, all research (and logic) suggests that this is extremely difficult. To do it successfully you would consistently need to get your decision-making right twice – when to buy and then when to sell. That is statistically very unlikely.


The above example is quite an extreme one, but there is plenty of research to demonstrate this disparity between published fund returns and what the average investor actually made.


Take Morningstar’s “Mind the Gap” study for example. This found that the average dollar invested in funds earned a 6% annual return over the 10 years to 31st December 2022. During the same timeframe, the average fund grew by around 7.7% per year.  This difference – representing over one fifth of the returns on offer - is people buying and selling at an inopportune time.


That’s the price of acting on fear and greed. It's the investment equivalent of shooting yourself in the foot.


Two strategies immediately spring to mind.


The first is to cut out “the noise”. Try not to listen to the “experts” on the financial news telling you how to structure your finances based on their prediction of the future. If they could genuinely predict the future, they wouldn’t be telling you about it. Also, ignore investment advertising. Remember that those adverts you see in the weekend papers or on the London Underground billboards are advertising last year’s winner. The fund group will no doubt also have some funds that did badly last year. But they won’t be promoting those.


The second is decide on a sensible investment strategy that is focused on your goals and then stick with it through thick and thin. Only change it if your personal circumstances change.  We would recommend reading the book Smarter Investing by Tim Hale as a detailed, yet accessible, “how to” guide for your investment decisions. 



We try to help make life happier and simpler for as many people as we can. If you would like to discuss your investment strategy, please give us a call on 020 3488 9505.

The value of your investments can go down as well as up, so you could get back less

than you invested.

Tax and Estate planning is not regulated by the Financial Conduct Authority.


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