The Holy Grail of Investing

Posted on April 1, 2022

Most investors want to find the Holy Grail of investing – an investment that provides great returns with very little (or no) risk. Many investors consciously acknowledge that such an investment doesn’t exist. But we may still be attracted to that investment because of how badly we wish it would exist. And sometimes hope and desire, unconsciously, overrule logic and rationality.

A Recent Example

A few years ago, a mutual fund was created specifically for investors who disliked volatility. They wanted to “cancel” it. The fund marketed itself as one that would “harness volatility” and “make volatility your asset.” It also claimed to be uncorrelated to traditional stocks and attempt to achieve both capital preservation and growth. Sounds like a real winner!

As you can imagine, money poured into this investment. It was marketed as the perfect investment for those concerned about volatility. It did well for a while, but it blew up in just one week. All the money was lost in less than one week! Ironically, volatility, the event the fund was going to “harness,” caused the fund to blow up.

Looking Forward

When the media reports ad nauseam on the “concern of the day,” we can deduce that someone will create an investment product or strategy to “solve” the concern. Based on current headlines, we could see investments that claim to prosper during periods of inflation, stagflation, or “overextended” markets. No matter the concern, we can assume the marketing will be very good – an emotional appeal to alleviate our concerns.

Our emotions and unconscious desires often inhibit skepticism and reasoning. Acting on emotions is the natural first response for many of us. It’s just the way we are hardwired. Thinking logically takes effort. That is why you have me. Together, we can ensure that your investment decisions are free from emotion, unconscious influences, and in line with your plan.

– Scott

©2022 The Behavioral Finance Network. Used with permission.