We often hear the investing advice “have a plan and stick to it.” Unfortunately, these words don’t seem to convey the intended meaning to the investors who most need to hear it.
When I first started DIY investing, if someone gave me this advice, I would have thought “my plan is to invest in things I think will go up and sell the things I think will go down, and I’ll stick to that.” Unfortunately, this has little to do with what people mean by the sticking-to-a-plan advice.
A big problem for many investors is following the herd. They buy the hot stocks at sky-high prices because everyone seems to like those stocks. Later they sell holdings at low prices because everyone seems to think selling is a good idea. Following the herd can cost you a lot of money if you act after the herd has acted.
An example of a plan is to have a particular asset allocation with fixed percentages of your assets in stocks, bonds, etc. Sticking to a plan means not abandoning these percentages when the investing herd is thundering in one direction and you’re tempted to follow them.
I’d like to find some other way to express these ideas other than “have a plan and stick to it” because I don’t think this expression helps novice investors much.