One Psychological Trap That Investors (And Everyone) Should Avoid Like The Plague

Beware What If Thinking

Not long ago, I wrote about my biggest investment mistakes so far

I realized this might have created the impression that I was kicking myself over and over for investments that, in particular, I had considered but failed to make.  

Yes, buying Microsoft at 16 in February 2009 would have left me a lot better off financially if I had pulled the trigger and then held on in the years that followed.  But I rarely indulge this "if only I had bought X" style thinking. 

Why?  Because it is an insane waste of time.  Yes, I do catch myself in the weeks or months after something moves the way I expected having a moment of "would have, could have, should have."  But, honestly, this is only for a moment.

The Key Is To Learn

You will always have investments you considered that you don't move on for one reason or another.  The key is to learn.  Analyze why you didn't take action in any specific case, then move on.  If it helps you stay humble and analyze your past mistakes, you can even maintain a list of investments that you missed--the so-called anti-portfolio

Your Psychology And Reasoning Should Be The Focus

Here is where things get profound.  Just because a stock or other investment moves in the direction you thought it might, you may still have made the right call not to invest.  Why? 

Because the risk/reward calculation didn't make sense.  The odds didn't add up.  Too many variables flashed red.  Sure, the stock went up, but your perspective and why you didn't pull the trigger might have been right.

Think of it this way.  If 8 out of 10 times a similar investment would have gone the other direction.  Well, then, all other things being equal, you were right not to buy the stock even if in that instance it went up.  Does that make sense?  That is the essence of risk/reward thinking.

"What If" Is A Crushing Way To Live

More broadly, living with a lot of what ifs floating around in your head is a crushing way to live life.  You slowly lose sight of the present, spend more time focusing on the past than the future, and get lost in mental loops that are not productive.  Not helpful.

I'll be honest.  As I've gotten older, I've seen this "what if" style thinking cropping up not in my investment life but in other areas.  Perhaps this is a function of having lots of different experiences with lots of decisions under your belt.  Fortunately, "if only I had X" hasn't infected my investment thinking beyond analyzing decisions and learning from mistakes. 

Don't Go There!

All I can say is, "Don't go there."  It's a colossal waste of your time and sanity.  Sure, reflect on decisions.  Even acknowledge mistakes.  But don't wallow in "what if."  You'll just burn up precious minutes of your time here on planet earth.

So if you find yourself overly indulging the "if only I had" mantra, stop right now. It's an absolute waste of time.  Get out there and plant, cultivate, and harvest the life you want.  The shadows of the past are just that.  Shadows.  Glance at them if you like, but don't ever let them become the focus of your life….