For the first time in this podcast’s history, we’re having a guest come on the show a second time! For the long-time listener, you may remember today’s guest’s story of loss in episode 41 Diversification: The Best Insurance Against any Investment Burst.
Joachim Klement experienced his worst investment in the early 2000s during the Dotcom bubble after investing in a tech fund. Sharing his story on our podcast inspired him to write the book 7 Mistakes Every Investor Makes (And How to Avoid Them): A Manifesto for Smarter Investing.
It’s a huge pleasure to have him back on the show. In this episode, he will walk through the 7 mistakes he talks about in his book.
Joachim Klement is a research analyst and former Chief Investment Officer with 20 years’ experience in financial markets. He spent most of his career working with wealthy individuals and family offices, advising them on investments and helping them manage their portfolios.
Joachim studied mathematics and physics at the Swiss Federal Institute of Technology (ETH) in Zurich, Switzerland, and graduated with a master’s degree in mathematics. During his time at ETH, Joachim experienced the technology bubble of the late 1990s firsthand. Through this work, he became interested in finance and investments and studied business administration at the Universities of Zurich and Hagen, Germany, graduating with a master’s degree in economics and finance and switching into the financial services industry in time for the run-up to the financial crisis.
7 Mistakes Every Investor Makes (And How to Avoid Them): A Manifesto for Smarter Investing
Seven Mistakes Every Investor Makes (And How to Avoid Them) calls upon years of experience and scientific research to deliver expert insight into the most common mistakes plaguing investors. From there, Klement outlines his personal tools and techniques, developed, refined, and successfully implemented over many years in the finance industry, to help avoid and mitigate such mistakes. His ultimate aim: to help you help yourself.
The mistakes covered include forecasting, short- and long-term orientation, repeating past errors, confirmation bias, not delegating to experts, and blind trust of traditional assumptions.
Seven Mistakes Every Investor Makes (And How to Avoid Them) is a must-have guide for every investor. Packed with scientific research and personal wisdom, this book draws together the most common investing mistakes to practically revealing how to overcome and eliminate them.
Don’t make another avoidable mistake by missing out on this book.
“I think artificial intelligence and other new tools built on big data analysis will help us get better, but they’re not gonna make us redundant. And they’re not going to end finance.”
Mistake No. 1: Forecasting
Forecasting is an exercise in futility. One technique to improve your forecasting is just to assume that the dollar will be in one year where it is today. There is lots of empirical evidence out there that this “forecast” is better than the consensus forecast and better than about 95% of all analysts in this world. The same thing is true of interest rates and stock markets.
Joachim presents a few techniques on how to get better when it comes to your investment forecasts, which eventually you have to make because investing is not about the past but the future.
Mistake No. 2: Short-termism
People are too short-term oriented in their investment decisions. They chase performance. They go in and out of stocks constantly. This results in a lot of transaction costs, even in the world of discount brokerages. The transaction costs accumulate and the performance gets worse. Just the very fact that you go from A to B and back to A and then to C and then to D and then to another stock cost you a lot of money and diminishes your performance.
Mistake No. 3: Being too long-term
It is a mistake just to let strategies run uncontrolled; you need to have some risk management and control mechanisms in place. There comes the point when you have to take that risk off the table. Not because it’s a bad strategy, but because you want to survive.
Mistake No. 4: Repeating past errors
Recollect the past, analyze, and learn from it. Too many retail and professional investors, even fund managers, CIOs of big institutions, keep making the same mistakes over and over again. Use a very simple technique of an investment diary where you write down your past decisions, why you made them and then check the outcome regularly and then start reflecting. I didn’t make that mistake. If it wasn’t a mistake. Why was I right? Was I right for the right reasons? Or was I just lucky meaning right for the wrong reasons? Learn from your mistakes.
Mistake No. 5: Ignoring the other side
When it comes to long-term thematic investing, many people focus on demand but forget about the supply side. Unfortunately, prices are as a result of the balance between supply and demand. Demand rises slowly but supply can adapt and adjust to it very quickly. So by the time demand change comes around, supply has already adjusted and you make no money.
Mistake No. 6: Not being active enough
None of us is an expert in everything. It’s important sometimes to delegate your money and investment decisions to fund managers. You do this with the hope that these specialists will be able to give you good value for money.
The mistake a lot of people make is to hand their investments to fund managers who aren’t active enough to have a decent chance of outperforming after their fees.
Mistake No. 7: Blind trust in traditional assumptions
We all think the financial market or any market is heading towards an equilibrium of supply and demand. The only way prices change is when some new piece of information comes along and shifts either demand or supply or both, and then you get a new equilibrium. Similarly, if you look at valuations of stock markets, we think that if market valuations are too high, they are supposed to come down to some long-term average.
This couldn’t be further from the truth. That equilibrium does not exist because financial markets are constantly changing.
“Don’t despair. We all make mistakes, even the best of us do. Learn from them and improve your investment every day, every year. Over time, you will get better, and things will get better. You will make new mistakes.”
Connect with Joachim Klement
- How to Start Building Your Wealth Investing in the Stock Market
- My Worst Investment Ever
- 9 Valuation Mistakes and How to Avoid Them
- Transform Your Business with Dr.Deming’s 14 Points
Andrew’s online programs
- Valuation Master Class
- Women Building Wealth
- The Build Your Wealth Membership Group
- Become a Great Presenter and Increase Your Influence
- Transform Your Business with Dr. Deming’s 14 Points
Connect with Andrew Stotz:
Further reading mentioned
Joachim Klement (2020) 7 Mistakes Every Investor Makes (And How to Avoid Them)