What to expect
There are many areas in which a person with specific knowledge and extensive experience will tend to perform significantly better than a neophyte systematically. Because in many human activities, the more knowledge and experience is accumulated, the more you can do better.
But not in finance: here things are partially, but substantially, different.
Experience and knowledge undoubtedly bring some advantages, but they are by no means decisive and are certainly not proportional to the results that can be obtained.
Why is it not worth what is valid in so many other sectors in finance?
Because the factors that influence the numerical result of investment are largely unknown and in any case beyond the control of any “expert”.
If you think your bank has tools and knowledge that can make your money pay more than you could on your own. This argument is not true.
The key to the mystery
In computer science, if a software has a wrong behavior than expected, this happens because the professional made a mistake and that mistake can be corrected.
In finance, if you bought a stock and it went down, it doesn’t mean that a mistake was made. Buying that stock could (or not, it depends) was a correct choice when it was made. It could (or not, it depends) be the correct choice to keep the stock in the portfolio, despite the decline. Even buying more could (or not, it depends) be the right choice.
The pure and simple reality is that no one, neither the investor nor the alleged finance expert who assists him in making his choices, is unable to know all the possible variables.
Why it happens
This happens because the prices of financial assets do not reflect something objective. There is nothing logical, calculable, rational that can make an alleged finance expert say that a specific price is “wrong” in the sense that within a certain period, it will surely be close to a “right” price.
The price basically reflects the average of investors’ future expectations. Future expectations change continuously based on new facts, on psychological dynamics, which are very difficult to hypothesize. Basically, we are in a world where someone believes that a stock is definitely to be sold and another, at the same price, believes that it is to be bought. There is nothing objective.
There is nothing to do: you must be aware of this reality.
But then, if everything is so uncertain and in practice, even experts cannot say anything about the future trend of the prices of financial assets, what determines the success of an investment? The short answer is the following: the transversal aspirations of the investor.
The success of an investment
The success of an investment, therefore, depends on the investor’s ability to accept the reality of the facts, to adapt his expectations to it, and to give himself rules that allow him to adapt to changes in the markets without being a victim of fear and greed triggered by new news every day.
Non-emotionality constitutes the subjective foundation of the success of an investment to which is added having the open-mindedness to adopt the objective instrumentation, namely: diversification of all kinds, compound interest, progressive accumulation.