Why Do Investors Fail? Why Can’t They Seem To Get Ahead?

Evan Barnard: Welcome to “The Investor Coaching Show.” I’m Evan Barnard, filling in for the illustrious Paul Winkler. He’s enjoying, I won’t say a week off. He’s in seclusion working on his next book project, and so we wish him well and a great ability to focus on that.

Please do me a favor and email him at paulwinkler.com and say, “Hey, this was a great show.” No.

Why Do Investors Fail?

So I want to get back to the basics. And we talk about investor behavior and so forth, and why is it that a lot of times investors just don’t seem to be getting ahead in doing what they’re doing? Why do investors fail? And why is it important to study that?

Well, let me start with a personal story. Years ago, way back in the dark ages of chalkboards and actual handheld phones that didn’t have screens and all that kind of stuff, I invested in America West Airlines.

And this is obviously, well before I was in the industry. I was doing consulting work. I’d been out of the Marine Corps for a little bit, about a year. And just, it’s a textbook story of how a lot of these things take place.

I was flying in and out of Phoenix quite a bit with the consulting company that I was working with at the time, and there were America West planes everywhere. It was like Southwest today at Nashville or Phoenix.

And honest to goodness, my cab driver that was taking me to the hotel, because this was way before Uber as well, was just talking about, “All you see is America West planes,” and this kind of stuff. And so I thought, Okay, well, I’m going to go buy some America West stock.

And at the time, I didn’t have that much money to get into too much trouble, but I bought some. And then you can guess how that turned out. I’m not sure how many of you have flown America West in the last 25 years or 30 years.

But that hurt, that stung. And even though it wasn’t a great sum of money, I felt stupid. I just felt like, Man, I should be smarter than this and the world’s out to get me and so forth. I’m never going to get ahead. 

So when you do that, it makes it very easy to stop investing because it’s never going to work. And that’s exactly what happened to me.

And it was a couple, three years before I decided, “Okay, I learned my lesson. That was just a mistake,” and so forth.

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But it’s important to understand why it is that you maybe aren’t making good investment decisions or at least getting good investment results.

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We have something that we talk to clients about called the investor’s dilemma. And this is actually in Paul’s book. And just as a plug, he’s got an updated version of “Confident Investing.” And we’ve got tons of resources at the company website, paulwinkler.com.

You can sign up for webinars there. A lot of content. The podcasts are there under resources. So take advantage of that.

The Investor’s Dilemma

But the first step in the investor’s dilemma is just simply fear of the future. I don’t want to make a mistake. Am I going to have enough? And that’s ultimately, whether you think, Oh, my kids are going to have to take care of me, or, My health isn’t going to be good, ultimately, that fear is just I’m not going to make it, and, I’m not going to have enough money.

So if you have that fear of not having enough for retirement, that intensifies the closer you get to retirement age. And if you’re already retired, those of you that are, you know it really has intensified. And that leads to the second step in the investor’s dilemma, which is a prediction of the future.

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There is a multi-billion-dollar industry of helping investors predict the future. 

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Now, none of us can actually predict the future. I don’t care if it’s CNBC, Fox Business, Wall Street Journal, Bloomberg, just the regular news, podcasts, blogs, ChatGPT is probably trying to help people forecast or predict the future. All of this news is out there because people are trying to view that as some edge that I can get with investing.

And so if I know which direction, I could pull up the Wall Street Journal right now and look at, “What’s the Fed going to do in the December meeting?” Well, why do I care? “Well, because I’m going to change my bond mix if the Fed’s going to lower …” All of this kind of stuff.

What are tariffs going to do? Switzerland’s tariffs went from 39% down to 15%. What is that going to do with my stock in a Swiss drug maker? And so you constantly are just driven to have this next piece of information that’s going to help you break through and predict the future so that you don’t make a mistake.

Past Performance

Well, what happens? What do you usually look at to make a decision in terms of predicting the future? It leads you to past performance, which is step three.

I’m watching all of this news. I’m listening to this news, I’m reading this information.

“Hey, this stock has really done well. This fund has really done well. This investment manager’s got a four-year track record.” You hear that stuff all the time.

“Look for a fund with a five-year record,” or, “Look at what’s one of the hot things this year? NVIDIA.”

It’s cooled off a little bit recently, but just, “Oh, it’s going straight up. I don’t want to miss out.” And so I’m looking at past performance.

Well, on cigarette packs, it says smoking is hazardous to your health. In Israel, that actually says, “This is going to kill you.” They’re pretty straightforward over there on their packs.

But it’s still a multi-billion dollar industry, and if that’s your choice, that’s fine, but the point is it’s got this little disclaimer. Well, what happens is on all mutual fund ads and so forth, you have this thing that says, “Past performance is no guarantee of future success.”

And so that sounds like, well, it’s not a guarantee, but it’s a pretty good indicator that that’s going to be successful. And that just simply ain’t true, as we say down in Texas. I don’t know, Mason, I don’t hear “ain’t” up here very much. Is that just a Texas thing, or is that here at all?

Mason: True Tennesseans say “ain’t.”

EB: Okay.

Mason: I hear it often here because, unfortunately, my parents are West Coasters, so I didn’t grow up in my language, but I definitely hear it. I definitely hear it.

EB: Okay. I must be hanging around imports then because I don’t hear it very much. So it just ain’t true.

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It really should say, “The past performance of this investment has no correlation whatsoever to any future performance of this investment.” 

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That would at least be an honest disclaimer. Now, I think people would still buy it, frankly, just like you still buy cigarettes if it says it’s going to kill you, but at least it’s an informed choice.

And so you look at past performance. Well, what’s one of the problems with past performance is those people don’t typically repeat. So it’s not a question of the data. There’s absolutely going to be some fund or some stock or some manager that is going to outperform the market over the next 2, 3, 4, 5 years, even, but you’ll only know that five years from now.

If that’s when you buy into that investment strategy or that fund, when it’s been up for five years, you’re buying high, breaking a fundamental rule of investing, and it doesn’t tend to repeat. And by the time you find that out, it maybe hasn’t dropped too much, but it hasn’t gone up very much, and you sell that and buy something else that’s gone up for five years in a row.

Information Overload

So you’ve got this fear of the future, and then you try to predict the future, you use past performance as a guideline, and you just get overloaded with information. You’re plugged into whatever, news feeds and so forth, and you just can’t make a decision.

It’s like when I was talking about looking at the aisle full of bottled water. In Whole Foods, you’ve got this whole aisle of water, and it’s like, well, it’s all water. And I still had a struggle figuring out which one I wanted.

And so a lot of times, if you’re overloaded with information, you might just shut down and not even invest in the first place. Well, that’s not a great strategy, but that’s what can happen.

In Paul’s book, he talks about the Harry Nilsson syndrome. He says, “Everybody’s talking at me, but I don’t hear a word they’re saying.” And so you shut down and make an emotion-based decision.

When you shut down, you just say, “Okay, I’m going to …” Whatever. “I’m going to go with the label I like. I’m going to go with the fact that that person’s got a blue tie.”

And I’ll say this: To me, as a veteran, it’s great if you support veterans or so forth, but I would rather you hire me for being incredibly competent and a veteran, not just make an emotion-based decision. And we just go with our instinct.

Some decisions we do have to make emotionally. I’ve shared this a couple of times. I didn’t have a spreadsheet back when I was single and evaluating any future wife with a checklist and, “Well, she has this and this and, well, not that. And she had a raw score of 85, so no, we’re not going to go out.”

That’s not how most of us date or pick a spouse. It’s an emotion-based decision. It’s like, Wow.

Kind of like when Adam saw Eve. I don’t think he said, “Flesh of my flesh,” I think he said, “Woo-hoo.”

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So we make an emotion-based decision because we get overloaded with information, but that’s not a great strategy for a long-term investment portfolio. 

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And when you make an emotion-based decision, as I said, you end up breaking the rules, you buy low and you sell high. You think that the thing that’s going up is going to continue to go up, and you end up breaking this rule of diversification.

Why? Well, I bought the thing that’s going up. I didn’t buy or create an entire diversified portfolio based on academic principles and so forth.

You try to time the market. Well, it’s an emotion thing.

“Well, Trump won the election. Well, Trump lost the Supreme Court case. I’m going to do this.” You’re just trying to time the market and guess the future direction.

And what happens when you break rules? Usually, it doesn’t turn out very well. And that’s step seven in the investor’s dilemma: performance losses. And that’s what happens to a lot of people.

Relative Loss

Here’s the silent killer in a portfolio, basically, is relative loss. What do I mean by relative loss?

Well, a lot of times, even the average investor, the average asset allocation investor is making maybe 2% or 3%. The average equity investor historically was making 6% or 7% but underperforming the market by 3 or 4%. And so you might be making money, but are you making as much money as you should be for the risk you’re taking?

And so you might be going up 3% or 4% and it just masks the fact that, well, wait a minute, that category I’m in went up 7.5% this year. I only went up 3%. What’s going on? Well, it’s the relative underperformance.

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All of the planning software, all of the research material, they assume you don’t make mistakes. 

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They look at the long-term average of the market, but they don’t assume that you’re getting in and out at the wrong time, and it’s garbage in, garbage out on that. And so that’s an important thing to be aware of. That’s something that we talk to with almost every client is just making you aware of that’s how you tend to be making decisions.

How do you break that pattern? Well, you follow academic principles. You actually build a diversified portfolio and have a game plan, an investment policy statement, all of those things that we talk about, so that you don’t have this disappointing result of a portfolio.

Even with a fully diversified, perfect portfolio, to the extent there’s stocks or equities in it at all, it’s always going to have some volatility, and there’ll be years or quarters where it’s down, but if you have a plan and you understand why it was built and how it was built, when it goes down, you’re just unhappy, but you’re not scared, you’re not worried or anything like that.

Pay Attention to Your 401(k)

Speaking of worried, here’s an interesting, kind of a cautionary tale. Not to create too much fear, but this jumped out at me in The Wall Street Journal. “Her 401(k) Contributions Vanished — and Her Company Had No Answers: One woman’s quest to recover more than $50,000 in missing 401(k) money shows the risks in some small retirement plans.”

And so ultimately this individual, Amanda Otter, was her name, noticed that the 401(k) contributions that were coming out of her paycheck weren’t all showing up in her 401(k). And in this particular company, they didn’t even have a match. So it was all just her 401(k).

The company was Information Technology Partners, and the Department of Labor got involved, and ultimately, she was out about $50,000. The company ended up going under.

And sometimes these things are really hard to catch. What happens is that a business owner will draft the 401(k) contributions, but they may take three months to get them in, even though the law says within 30 days and so forth, because they needed a piece of equipment, or maybe a loan didn’t go through, or they lost a customer. Who knows what?

And so just be aware. It’s just like we were looking at year-end stuff of checking beneficiary designations. Just make sure that you pay attention to those things. Don’t just assume everything is hunky-dory.

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If a plan has less than 100 participants, they don’t have some of the same stringent audit requirements that a larger plan has. 

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Doesn’t mean all small businesses are out to get you at all. It’s just one of those things; it’s like checking to make sure your ID theft stuff is up-to-date and you change your passwords. It’s just something to check off.

Private Credit

Hey, we’ll get a little bit technical here. You’ve been hearing a lot about private credit.

And a lot of times, when you have a lower interest rate environment, and it’s crept up some, but still, none of us have seen a 12% CD recently, like during the Carter years or anything like that. And you listeners under 30 are like, “Who’s Carter?”

But when interest rates are lower, you start to see people on the fixed income side of the equation — what should be the stable, secure side of a portfolio — you see them either starting to extend maturities, getting longer term bonds, or using lower grade debt. And of course, we’ve also seen a lot of this private credit instead of just the typical corporate or government bond market.

Well, there’s no free lunch in investing. As much as we would like to think there is, there just isn’t.

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Frankly, diversification or rebalancing is about the only free lunch that’s out there, as far as that goes. 

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But this is out of The Wall Street Journal, and Paul had sent this to me, so I wanted to cover that. “U.S. Insurers Are Binging on Private Credit, Moody’s Says: A handful of insurers are buying much of the investments, which are hard to trade and have relatively low credit ratings.”

So if someone has a low credit rating, what generally goes along with that? They’re going to be paying a higher interest rate somehow. There is no free lunch.

So the corollary also works. If all of a sudden I’m getting a higher interest rate, there should be a reason for that, and there is. It’s because it’s higher risk.

“The private-credit boom is rapidly changing the investments made by U.S. life insurers, with some firms parking more than half the fixed-income assets they need to fund policies and annuities in hard-to-trade debt, according to new research by Moody’s Ratings. Illiquid investments accounted for $685 billion — about 18% — of the $3.8 trillion in fixed-income investments insurers held at the end of 2024. The pace of purchases seems to be increasing, with less-liquid private debt comprising about 23% of the $522 billion of bonds insurance companies bought in the first half of 2025.”

So that’s a lot of money poured into the insurance company, either through annuity sales or something. Life insurance premiums.

“The industry’s holdings are unusually concentrated, with just 10 insurers controlling about 43% of the illiquid assets held at the end of 2024. … Two of the most exposed companies are Security Benefit Life Insurance, which is owned by Todd Boehly’s investment firm Eldridge, and Delaware Life Insurance, a member of Group 1001.”

I have no idea what all they own, and they couldn’t be reached for comment for the article. “Private credit, which includes corporate loans, real-estate debt, and complex asset-backed securities, has surged” among fund managers. And so the debt rarely trades. That’s what illiquid means is it’s hard to get rid of.

Sticking With Tried-and-True Strategies

But insurance companies are kind of suited for that because they are typically funding really long obligations. But the bottom line is that it comes with extra risk.

“Still, ‘during market stress insurers may be forced to sell at unfavorable prices, leading to realized losses and earnings volatility,’ Moody’s said. Not only is the debt harder to trade, it generally comes from weaker borrowers, Moody’s found. About 10% of the investments have junk credit ratings, compared with 5% of the overall.”

And so 41% have BAA, which is just the lowest bond rating above junk bonds. So that’s almost half of the bonds are one level above junk or junk in the insurance company. And so that’s what’s being used to back these annuity contracts and things that people sell.

Well, why does that matter if they’ve got private credit? What do I care?

Well, there was an interesting article, completely unrelated to this previous topic, where BlackRock is facing a 100% loss on a private loan, adding to credit market pain. Oh, I wonder if that could happen to the insurance company.

They had extended some debt of $150 million to Renovo Home Partners, a struggling home improvement company. And as of last week, the firm had a new assessment, zero. And so all of a sudden, that firm is filing for bankruptcy, and BlackRock held the majority of that private debt. There were a couple of other owners that had some smaller chunks, but the bottom line is, again, there is no free lunch.

Now, regardless of your views on BlackRock, let’s just assume that it’s a very large company with a lot of very smart people evaluating these things. And yet you start increasingly to see private credit being pushed to the retail consumer, even if they say, “Well, you got to be in a private investor or so forth.”

You’ve even got this company out there, Yrefy, and basically, my understanding is it’s just packaged tranches, groups of maturities of distressed student loan debt.

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So yeah, it’s got a higher interest rate, but that always comes with some extra bells and whistles that you probably don’t want to hear go off.

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And so there’s something to be said for sticking with tried-and-true strategies and the stability that comes from a high-grade corporate bond or a high-grade government bond for the stable side of your portfolio. Generally, getting into these esoteric areas doesn’t turn out well a lot for the retail investor.

Advisory services offered through Paul Winkler, Inc an SEC registered investment advisor. The opinions voiced and information provided in this material are for general informational purposes only and not intended to provide specific advice or recommendations for any individual. To determine what investments are appropriate for you, please consult with a financial advisor. PWI does not provide tax or legal advice. Please consult your tax or legal advisor regarding your particular situation.