The biggest threat to your portfolio right now is you

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In the face of all of this negativity, I’m often asked which factor poses the biggest threat to an investor’s portfolio. My response to this question is always unequivocal — the biggest threat is you, the investor. I would argue this is more the case now than ever: If an investor is not cognizant of the effect this negativity is having on their thought patterns, it can lead to dangerous and costly decisions.

The good news is there is a solution. It begins by trying to become a clear thinker by separating out the noise from what’s really important. The tough part though is it means unplugging from society’s daily programming, which can be very difficult to do.

Naval Ravikant, chairman of AngelList, offered some great insight on this challenge when he was interviewed recently by Joe Rogan on his podcast.

“Now it’s all diseases of abundance. We’re over-exposed to everything. So the way to survive in modern society is to be an aesthetic, it is to retreat from society. There is too much society everywhere you go, society in your phone, society in your pocket, society in your ears … everyone is trying to program everybody. The only solution is to turn it off.”

Nassim Nicholas Taleb, the statistician, ties this back to the investment world in his book “Fooled By Randomness,” showing that increasing the frequency of how often one checks their portfolio changes the probability of seeing a negative result.

In his example, a portfolio that yielded a 15 per cent return and 10 per cent volatility, the odds of seeing a loss increases from seven per cent to 33 per cent just by shifting the time frame from yearly to monthly. It gets even worse to 50 per cent if looking at it on a daily basis. As a result, “over the short-term increment, one observes the variability of the portfolio, not the returns. In other words, one sees the variance, little else.”

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