Investors have short memories

Most investors I speak with tell me they made terrible mistakes that caused them losses during the past 12 months - thinking home prices would never go down, taking more risk then they could stand (80-100% in equities), chasing higher interest rates by buying junk bonds - are the 3 I hear most often.

"Unfortunately, many investors have short memories (emphasis added). It's easy to say that you'll never make the mistake of thinking a high-flying fund's returns justify its higher risk, given your experience from the past two years. Yet when the next bull market starts -- if it hasn't already -- those top performers will again try to tempt you away from the less compelling funds that did so well during the bear market." 

"To be a successful long-term investor, though, you need to get past the short-term crazes that seduce less disciplined shareholders into making decisions they'll later regret. Once you make the smart decision to buy a fund based on its overall long-term track record rather than how it has performed in the past year or two (emphasis added), you still have to avoid the pitfall of dumping it when it's out of favor (emphasis added). If you can do that, however, you'll be well on your way to financial independence."

Article from the Motely Fool

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