In their latest Q4 2021 Letter, GMO discuss four of the biggest investment mistakes to avoid in a rising market. Here’s an excerpt from the letter:
None of us, regardless of our skill and experience in investing, can be spared the pain caused by making mistakes. While we can all certainly learn from our mistakes, we are often still tempted to fall into the next trap, especially at times when markets seem destined to climb far beyond what reason dictates.
Many of these mistakes might be avoided by exercising the discipline of simply pausing to consider the potential pitfalls of your investment decision. With contributions from my own experience and those of my GMO colleagues, I present a handful of mistakes that the current investment environment seems to invite.
While clearly not an exhaustive list, perhaps you will recognize yourself in one and pause to consider how you might avoid a costly misstep:
Mistake 1: Piling into Growth and the U.S. and out of Chinese and Emerging Equities
Mistake 2: Piling into Private Equity and Venture Capital
Mistake 3: Assuming that Assets that Made it through the Pandemic Well Carry Low Fundamental Risk
Mistake 4: Using an Unrealistically High Expected Return for Your Portfolio
This is by no means an exhaustive list of the mistakes investors will be tempted to make this year. When I sent out a request to colleagues at GMO for suggestions of mistakes they saw investors making or contemplating, I got a list far too long to do justice to in a single letter.
Some of them were inspired by moves that GMOers had seen investors make recently, but some seemed to be inspired by mistakes that they themselves have made over the years.
None of us are immune to making investment mistakes, and investing does seem to be an area where there are lessons that usually cannot be taught, only painfully learned on one’s own.
I don’t imagine that this piece will change that basic truth, but as you find yourself making decisions about your portfolio to position for 2022 and beyond, at least spend a moment to ask yourself whether you are falling into one of these classes of investment mistakes. No matter how fast markets are moving, taking a little time before pulling the trigger on a decision to try to ensure it is a well-reasoned one is unlikely to be a mistake.
You can read the entire letter here:
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