Are You a Zombie Investor?

Whenever I think about zombies, my mind immediately creates a picture of a group of blank face dead people walking around with no thoughts of their own. They settle on something or someone in their mindless state and collectively move in that direction. As a group, they have a goal, but not one of them can tell you what it is. Their failure or success can only be determined by their actions, either good or bad.

When you make an investment decision, are you basing that decision on facts gathered through a due-diligence process? Or are you mindlessly following the crowd?

History appears to support the latter. There’s a wonderful book written by Charles MacKay titledĀ Extraordinary Popular Delusions and the Madness of Crowds. It’s as relevant today as it was when it was written in 1841. People seem to lose their minds when they get caught up in the hype. The most recent case was the sub-prime mortgage blowout and before that, the dot-com explosion. In many cases, the fear of missing the “next big stock” or missing out on potential opportunities can drive individuals to act in ways that defy common sense.

I see advertisements every day that say things like, “Last year we earned 12.7 per cent for our clients,” or, “This TFSA portfolio using mutual funds has returned more than 10 per cent a year.” Really? Do you know that these ads mean absolutely nothing to you? Did you happen to see the footnote hidden at the bottom that states, “Past performance is not an indication of future success”? These hyperbolic statements are no more relevant than those electronic boards they have by roulette wheels that tell you what the last 30 numbers have been. They mean nothing because what happens next in the markets, as with a roulette wheel, is unknown. The purpose of these statements is to suck you into thinking that they are relevant in order to get you to lay your money down. I like to think of the people who advertise in this manner as zombie hunters.

When you make an investment, do you ask yourself, “What am I going to get out of this investment?” Most people invest with the hope that somehow, when the time comes to sell these investments, they’ll get more than they paid. In other words, they’re gambling on the future value of their assets. So I ask you, why would anyone want to gamble on their financial future? Wouldn’t it make sense to plan your future, work toward your specific goals, and know that when you stop working, you’ll have enough money to comfortably live out your life?

To me, zombie investors are people who see these ads and move in that direction. There is absolutely no reason to do so, but in their mindless state they go with the crowd. This is exactly what the zombie hunters are counting on. I, on the other hand, don’t believe in gambling with my future (nor the futures of my clients), so I always want to make sure I’m getting something from each investment I make, be it dividends, interest, or rent.

I like to ask my clients, “If you had a rental property with consistent rental income, would you mind if your property assessment decreased in one year?” Their answer is almost always a resounding, “No.” The value of that specific investment is derived though the ongoing cash flows. The price of the actual building is only relevant when the time comes to sell. So long as their plan doesn’t revolve around selling their rental property at a specific time, they are able to mitigate market fluctuations as they are still receiving rental income.

When proceeding with investments, don’t get caught up in a sales technique that doesn’t fit with your goals. Plan your goals and find an approach that allows you to meet those goals. Don’t be fooled by ads or advisors who tell you how much money they’ve earned last month, or last year; it’s not relevant to you. If you think it is, be careful because they’re probably a zombie hunter and you’re probably a zombie.