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Chapter 1. Other People's Problems > Investor Performance

Investor Performance

The willy-nilly approach of most investors gives them a lack of solid foundation from which to make decisions. As a result, investor allocations and stock picks are frequently not aligned with their goals. One consequence is that the typical investor spends time moving money from one investment to another, trying to meet an obscure goal. Investing without a plan, or road map, leads to a lack of discipline. The lack of discipline allows your psychological biases and emotions to invade the process.

Ultimately, these problems cause many people to be poor investors. Indeed, investors who must make their own decisions underperform the market indexes. Consider the performance of 66,465 households that owned stock through a discount broker from 1991 to 1996.[3] The average household in this sample owned just 4.3 stocks worth a total of $47,334. The first problem we can identify is that investors do not adequately diversify. Owning only four stocks? Having such a concentrated portfolio is very risky, a topic of Chapter 6, “Foolish Risks.”


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