Don’t Invest Like Captain Hindsight

The only measure of certainty we have in the markets is the clarity of hindsight. No one knows what is going to happen in the future and complicating matters is the fact that no two events unfold in the exact same manner.

That being said, constantly looking to the recent past for your investment direction can be a misleading predictor of future returns. Probably one of the worst things you can do for your portfolio is to turn into Captain Hindsight. You know what I’m talking about….

 “I sold in February because I was scared and now I’m trying to buy every euphoric rally along the way to make up for it.”


“I criticized my advisor for not being conservative enough four months ago, now I’m yelling at him for not being aggressive enough near the highs.”


How did you not know utility stocks were going to be up 23% in six months? It was so obvious at the beginning of the year!

Let’s face it, you missed a few breaks along the way or made a decision that you felt was rational at the time and now regret.

So what? It happens to the best of us. Shake it off and keep a sound perspective.

Everyone has multiple investment opportunities that pass them by during the course of their lifetime. Hundreds of these happen to us every single day without our knowledge. It’s the ones where you consciously made a decision (get in or stay out) that cause the most regret.

The funny thing is that you only know the outcome with the benefit of hindsight. It could just as easily have gone the other way and you would look back with relief that you didn’t make the move.

The best thing you can do when you are holding on too tight is take a step back and assess your situation from a big picture standpoint. You have time to make up for any missteps along the way.

The beauty of the market is that it is always serving up opportunity. We just have to be patient enough to wait for it to come to us.

Don’t think that you have to solve all your problems in the next six days to make up for the last six months. If you do that, you will probably fail.  Any changes that you make now should be done with the mindset that you are sowing seeds for the next 1, 3, or 5 years.

Too many investors spend their days worrying about which fund performed best in the month of June, rather than which fund is going to emerge as a leader over the next half decade. They would rather follow recent performance than focus on sensible long-term strategies to reach their goals.

The same people who spend months researching the best TV to buy will place their $1 million portfolio with the guy who claims to be up 25% this year after a 10 minute sales pitch at the gym. It’s insane when you think about it, but it happens every single day. That’s making a decision based on what happened in the recent past, not what is truly in your best interests for the future.

The Bottom Line

The bottom line is that investors should avoid being overly critical of every decision in hindsight. We all make mistakes at various times along the way. Even mindless buy-and-hold indexers screw up their portfolios from time to time. It’s just human nature.

If you see a pattern emerging where you fall into the same trap over and over again, then work to change the emotional triggers that lead to that behavior. The other option is to hire someone whose philosophy you believe in to manage your money for you.

Successful investing requires time, tools, and discipline to achieve a satisfactory result. Make sure that you have all three components in place or you are likely to feel the sting of regret more often than not.

Disclosure: At the time this article was written, the author owned shares of EUFN. 

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Chetan N Patel 8 years ago Member's comment

First I would like to say great article and great topic of choice. To be successful in the real world, you need to have a short term memory because you will miss opportunities. This is not only true in finance but in other careers as well. The only thing you can really do about it is not beating yourself up about it. People miss key opportunities all the time and they can always learn from their mistakes. Dwelling on mistakes will only worse the situation and it will not lead to successful future. Thank you for contributing such and interesting article. It is a very interesting read for young finance enthusiasts like myself.

Chetan Patel

Dividend Diplomats 8 years ago Contributor's comment

Agree completely. To be successful, you need to have a short term memory. If you did miss an opportunity, oh well. Figure out why you missed the opportunity, learn from it, and apply that lesson the next time the situation arises. However, dwelling on the misses and having a knee jerk reaction is a recipe for failure.

Great topic!