When you are beating the market and your account value is up, it’s easy to think you are an ‘excellent investor’.
Your ego begins to grow, you feel you can do no wrong in the market. You are ‘God’s gift to investing’.
This type of thinking can lead to excessive risk taking and going outside your circle of competence. You begin to take more risks than you would've before.
Ego causes one to speculate instead of invest.
Pride comes before a fall. The reality is there are millions of people investing in US equities, many of them smarter than you or I. We aren't special in that regard.
We can gain an edge not be being smarter or 'better' at investing than the next person (or institution), but by changing our perspective.
Instead of thinking we have some amazing ability to invest in 'the next Apple (or Amazon, or Facebook, etc.)', we can invest in high quality businesses that have proven they have strong and durable competitive advantages based on their track records.
Instead of thinking we can spot a turnaround about to materialize, we can invest in businesses that are already incredibly profitable.
Instead of pretending we have some secret that no one else knows to predict the next quarterly earnings report and gain from an earnings beat, we can invest for the long-run.
I believe the most successful investors over long periods of time are those who have their egos in check. Investors who are calm, patient, sober, and have perspective are much more likely to succeed over long periods of time than those who let their egos puff themselves up and speculate.
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