Investors Can't Skip Over Fundamentals & Expect Success

Investors, Without Fundamentals Don't Expect Long-Term Success

                                   by: Brendan Magee

For the better part of 12 years, I have refereed basketball games. I have and continue to enjoy being around the game and the kids. I ref at the high school varsity level as well as the little kids just starting out. One thing that often catches my attention is that coaches, coach the little kids in the same way that you would expect to see college players coached. They draw up elaborate plays to score points. They design sophisticated defensive schemes to stop the other team from scoring.

Little to no time is spent on helping the players develop fundamentals like passing and catching the basketball. As a result well designed scoring plays get sidetracked by a kid who is unable to catch a ball. That well designed play becomes a pile of 10 bodies scrambling on the floor trying to gain control of the basketball.

Because the skill in catching and passing the ball is never given the attention it deserves, the scene of a player mishandling the basketball and players diving over one another to secure the  ball is  often seen at the high school varsity level. Countless times it happens at both boys and girls games. The truth is, there just isn't enough time given to helping kids learn and master the fundamentals of the game. As a result, they never realize their potential and can't figure out why they are not the player they expected to be.

The same thing happens to investors. Investors start out with the intentions of having their money grow and attain peace of mind for themselves and their family, but history is showing they are falling well short of their expectations. According to Dalbar Inc., for the 20 year period ending 2012, stock investors annualized returns were on average 4.25% while U.S. Large Company Stocks did an annualized 8.21%. Starting with a $100,000 investment that means over that 20 year period of time the average investor underperformed the market by $187,361. That's the average investor. The below average investor faired much worse.

  Bond investors did worse. Annualized they did 0.98% vs. the Barclays Bond Index which did 6.34%. Who needs fundamentals when you can just start investing, right? The answer is,  investors need them desperately. History is clearly showing that without them investors will not come any where close to accumulating the money they need to achieve financial security. The cost of living in that time rose 2.43%. This scenario doesn't scream wealth and abundance, it screams scarcity and sacrifice.

So what are the fundamentals investors are stepping over? There is a complete lack of understanding as to how the stock market actually works and where returns are coming from. As a result, they are easily deceived and fleeced by brokers and planners more interested in serving their agendas not the investor. Can you say Bernie Madoff or Allen Stanford? There is no attention paid to the purpose for which people are investing. There is no time given to truly understand what people are investing for. As a result there is not an investor driven agenda as to how they are going to use their time energy and money to transform their lives, impact the lives of the people they care about, and the causes they are most passionate about. How or why would anyone start doing something without truly understanding what you are out to achieve first? As a result, investors follow a pattern of doing what feels good or makes sense in the moment, but isn't consistent with fulfilling their true purpose for money. They are following a path of self sabotage.

Now when a basketball game doesn't go the way the coach or players believe it should have who gets blamed? The ref is a convenient excuse. When investors aren't achieving the results they thought they should who gets blamed? Wall Street, the President, Capitalism, to name a few. There is power in seeing where you have not been responsible, seeing that you had as much to do with your  results as anything or anyone, and committing to never let it happen again in the same fashion. Now when the investor or investment industry doesn't allow the time for this responsibility to take root and be acknowledged, the investor is robbed of their power. Authority over how their investments will be directed is handed over to someone else, and that someone else doesn't care nearly as much about the results as the investor themselves.

So take the time to focus in on and master the fundamentals of investing. In time you will see it was priceless.


Brendan Magee is the founder and president of Inevitable Wealth Coaching. With questions or comments, call 610-446-4322 or e-mail Brendan@coachgee.com.