Benjamin Graham, widely regarded as the father of value investing, once observed that “the investor’s chief problem – and even his worst enemy – is likely to be himself”. It is a powerful statement, not because it is critical of investors, but because it is honest.
In our experience as financial planners, most investors are not reckless, irrational or careless with their money. In fact, most are thoughtful, hardworking people who have spent decades building wealth, providing for their families and making responsible financial decisions.
And yet, even the most astute investors are not immune to fear, uncertainty, doubt, impatience or the discomfort that comes with watching markets move against them.
We tend to think of investment risk as something external: weak markets, political instability, currency movements, inflation, interest rates, global conflict and disappointing economic growth are all obvious and measurable sources of concern.
But over many years of advising clients through different market cycles, we’ve learned that the more subtle risk often lies not in the market itself, but in how investors respond to it.
This is not a criticism of investors, but rather an acknowledgement of human nature and its role in shaping investment returns. For most investors, markets are not experienced through spreadsheets but emotionally.
Fear of losses and uncertainty
A 10% decline in a portfolio can feel like years of hard work being eroded, and a weak rand can feel like a loss of control. A negative headline can be perceived as a warning sign, and a prolonged period of poor returns can cause even disciplined investors to question whether their plan is still working.
In practice, we often see that the most damaging investment decisions are not made because investors lack intelligence but are made in moments of discomfort.
A client who has carefully agreed to a long-term investment strategy may start to question it after a difficult quarter; while another may want to reduce equity exposure after markets have already fallen sharply.
A retiree drawing an income from their investments may become anxious during a downturn and want to move into cash, even though doing so could crystallise losses and compromise the portfolio’s ability to recover.
A younger investor may lose patience with a diversified portfolio because a narrow part of the market has performed better over a short period.
These are deeply human reactions, but the reality is that markets often test investors at precisely the point where discipline matters most. While fear is perhaps the most obvious behavioural risk, it is not always the fear of losing money that worries investors.
It may be the fear of not having enough to retire comfortably, the fear of becoming dependent on one’s children, the fear of making a mistake that cannot be undone, or the fear of seeing a lifetime’s savings eroded by circumstances beyond one’s control.
For those already in retirement, market volatility can feel especially personal because there may no longer be a salary to replenish capital.
Confidence comes from the plan
This is why telling investors to ‘stay calm’ is seldom useful. We believe that calm is easier when one understands the plan and when the plan is built around cashflow needs, time horizons, tax implications, liquidity requirements, risk capacity and emotional tolerance.
When clients understand why their portfolio is structured in a particular way, what role each investment plays, and how the plan is expected to behave under different market conditions, they are better equipped to remain invested when conditions become uncomfortable.
Another behaviour we see regularly is the temptation to seek certainty where none exists.
Many investors want to know whether now is a good time to invest, whether markets will recover, whether the rand will strengthen, whether interest rates will fall, or whether a particular asset class will outperform.
While investing doesn’t offer certainty in the short term, it can provide a framework for making sensible decisions despite uncertainty.
Remember, good financial planning is not about predicting the future with precision; it is about preparing for a range of possible outcomes, ensuring that short-term cash needs are not exposed to unnecessary volatility, that long-term capital has enough growth exposure, that retirement income is sustainable, and that the portfolio is not dependent on a single economic scenario playing out perfectly.
In other words, planning allows investors to make decisions from a position of structure rather than emotion.
Why comparison can be costly
Comparison is another factor that can unsettle otherwise disciplined investors, because in every market cycle, there will always be someone who appears to be doing better.
During property booms, investors question whether they should own more property, and during a bull market, they question whether they have enough global exposure.
However, the difficulty with comparison is that it rarely includes the full picture, as we are unlikely to know another person’s risk profile, debt levels, liquidity needs, tax position or investment time horizon.
For this reason, one of the most valuable roles of financial planning is to keep the focus on the investor’s own objectives.
Remember, the purpose of investing is not to outperform your neighbours, colleagues or friends – it is to provide income in retirement, educate children, preserve capital, create optionality, support loved ones, reduce dependency, and provide peace of mind.
When investments are viewed through this lens, performance remains important, but it is no longer the only measure of success.
Often, rather than manifesting as recklessness, greed can appear quietly as the desire to abandon a sound plan in favour of something that has recently done well. In fact, many investors who chase returns are not greedy in the conventional sense – they are simply anxious not to fall behind.
By contrast, patience remains one of the most underrated investment disciplines – and also one of the hardest to maintain because it can feel passive. Yet, when it comes to investing, unnecessary action is often the enemy of good outcomes.
We know that rebalancing, adjusting drawdowns, reviewing structures and updating plans are all necessary parts of responsible management – but activity should not be confused with progress. Sometimes the most valuable decision an investor can make is to allow a well-designed plan the time it needs to work.
From experience, we know that the most successful investors are not those who never feel anxious, but those who have systems in place to prevent anxiety from becoming action.
They review their plans regularly, they understand the purpose of their investments, hold enough liquidity to avoid forced selling, and avoid making permanent decisions in response to temporary discomfort.
They ask questions, seek perspective and allow their long-term objectives to anchor their short-term responses. This is particularly important when structuring retirement income that lasts, where drawdowns, liquidity and market exposure need to be managed with both discipline and perspective.
Benjamin Graham’s observation remains as relevant today as it was decades ago because markets will always be uncertain and investors will always be human. The goal, therefore, is not to eliminate emotion from investing, but to build a plan strong enough to withstand emotion. By Eric Jordaan – Crue Invest (Pty) Ltd – moneyweb.co.za
