No Sign of Herd in Preferred Shares

What do I mean by wrong risks? To start, consider stock selection, in which unsuccessful investors are highly dependent on other people's opinions. To that end, they always end up buying the well-known crowd favorites in which the herd is already highly involved. Because they are attracted to bets that feel "safe," they're almost always playing in XYZ for the last 20%, rather than the middle 40%. That stacks the odds against them from the start.

Furthermore, they also tend to be more interested in the news surrounding a company than in the performance of the company's stock. Yet time and time again we see how the market "knows" the news long before it's printed in The Wall Street Journal. For example, when commenting on the financials last June, I wrote how:

Indeed, price action in these securities — the market itself — was broadcasting the credit crunch long before it became a political stump speech or the lead on the evening news.

So while I'm always curious if there is news that accompanies a move in one of my holdings, it usually doesn't change my opinion as to whether I should buy or sell. In my world, the market is the news. The stories are just something to read in the bathtub or while waiting for the train.

Of course, as we always point out, what matters in investing isn't what you trade, but how you trade it. Unsuccessful investors don't just take the wrong risks, but end up taking them in undisciplined and highly dangerous ways.