PFM - Potomac Fund Management

Investor is not tracking portfolio performance

Investors tend to track each individual investment purchased, but often neglect the big picture, such as, how much is my net worth or account value is increasing. Investors can often tell us the percentage return on a recent mutual fund or stock purchase, but when asked for a one, three or five year return of their accounts often this information can not be produced. Anyone can have a great trade, but what is important is success on several trades over a longer period of time.

Chasing Performance

Many investors do not have the time to seek out the proper resources for investing and rely too heavily on the media. By the time the media is reporting on news, it is old news. Many investors we spoke with were investing heavily in bonds at the end of 2002 because at that point bonds had fantastic performance, However, at that point, we were beginning to see signs of market recovery.

Invest with only performance in mind

Investors are quick to invest in great performance, but do not evaluate the potential risks. Investors often believe they can tolerate certain potential losses, but when faced with the reality of those losses they make additional mistakes because of emotion. Investors also make decisions based on fees. However, investments are not like buying televisions you can easily compare products by evaluating performance net of fees. Comparing performance net of fees and evaluating risk makes the fees irrelevant.

When making your investment decisions, ask yourself if you are making any of these same mistakes.