Being an investor is tough. So many aspects run counter to how we as people operate.

Innately, most of us don’t relish having to exercise patience. We naturally have expectations that, even if fulfilled, don’t always happen in the time or manner we’d hoped. We don’t love surprises, especially negative ones, and thus we attempt to exert some control over our world.

And then there’s the market. It demands patience, acts in ways that almost invariably run counter to expectations with little regard to our hopes or timelines, and delivers surprises with such regularity that we should all likely question why we still get surprised.

These tensions are why it is so often said that people are hardwired to be bad investors.

How then do we succeed when it demands so much counterintuitive behavior? With experienced partners, commitment to the process, and continuous education. This is certainly true today, when markets are acting in ways to stress clients that, in some respects, is reaching historic levels.

After the bear market of 2022 that left so many asset classes beat up, came 2023, when for most of all the year, assets traded flat or down, while a handful of household names soared.

Many people’s portfolios were left like a sailboat without a wind while they watched those stocks climb.

While market storms are certainly scary for investors, an equal danger is when markets get rangebound and one’s sailboat/portfolio doesn’t seem to be going anywhere. History shows that most of the time, the best course of action is to not act, but when investors’ patience gets tested, they feel a strong compulsion to do something.

There have been numerous studies done on people’s failure to stay the course and the resulting gap between their performance versus that of what they were invested in. One famous example comes from the historic run of Peter Lynch in which he averaged 29% growth annually between 1977 and 1990. And yet Fidelity, which oversaw the fund, stated that most investors lost money.

How is this possible? While the fund averaged 29% a year over that timeframe, it did not do so in a straight line. Between large pullbacks and periods of flat performance, there were a number of periods that tried investors. The result for many is that after a great year that would pile into the fund, they would abandon it when it struggled.

Consider, too, that the most successful stocks inevitably boast the largest market capitalizations, and yet once at the top, they rarely stay there. Past performance is just that—in the past.

While the media and investors have been captivated by those handful of stocks, in the minds of many a very real danger exists not just in those stocks and their valuations, but those blindly investing in index funds.

In short, it is easy to feel like there must be a problem with the boat when you aren’t moving as you had hoped, but more often than not, it is just a temporary environment and the changes that one would likely contemplate taking would amount to nothing more than chasing the wind and likely missing the one about to catch your sails.

Ask most investors if they can time the markets, and they will say, “No.” But most still try—whether it’s chasing performance and predicting an investment’s run has a little more time, or whether to get out of something that doesn’t seem to be working.

Most of these predictions, no matter how logical they sound, are based on nothing other than recency bias. If an investment is flat or down of late that will continue indefinitely, they reason, and if something has been going up, that will continue.

This of course amounts to buying high and selling low, a damning practice that can ruin returns even in the best of investments.

Even the biggest investment houses with all their tools, insights, and analysis are miserable at predicting markets. An annual ritual that experienced investors learn to use far more as entertainment than actual advice.

Heading into 2023, the predictions were nowhere close to what actually occurred. The S&P 500 finished the year up over 4750 and yet the average prediction was for something below 4000. Understandable of course, but again an example of recency bias trumping actual insight.

The biggest challenge to investors is behavioral finance, i.e., doing or not doing those things that run counter to our feelings. Research shows the behavior component has upwards of a 2% annual impact on returns over time.

One great way to help mitigate this challenge is to remain properly diversified so some aspect of your portfolio has a good chance to do well at any time. It also is of benefit for the unexpected costs or needs that can occur and cause one to have to sell positions at inopportune times.

Recency bias tempts us to chase recent winners and flee from those positions/asset classes that may have struggled. Of course, chasing recent “winners” more often than not means buying assets/stocks that have become quite expensive.

Current valuations are not a timing tool, nor a catalyst for near-term returns, but as history and relevant research has shown, it is the strongest predictor of future returns.

It is so easy to confuse the state of one’s portfolio/sailboat with the realities of a current environment that may or may not provide wind for the sails. However, history is clear, even if it runs counter to our innate feelings: Make sure to keep the ship in good shape by staying diversified, not chasing performance, and realizing efforts are better put forth into positioning one’s sails/holdings into those assets that may be out of favor today but offer valuations that make for a compelling tomorrow.

Tim Mitrovich is the CEO of Ten Capital Wealth Advisors LLC, in Spokane. He can be reached at 509.325.2003.