AFTER I finished a talk at an investor conference in Newton, Mass., a woman approached me with a piece of paper in her hand. On it was written her investment portfolio.
"There's just one thing I want to know," she said. "How could this happen to me?"
Behind each investment on that paper, there was a story.
Backing up each tale was one fundamental truth: With each purchase or sale, she had thought she was doing the right thing.
Instead, she had wound up with a portfolio no investor would be proud to own, a mess of overlapping investments and strategies that, when viewed in hindsight, appear fairly certain to deliver mediocrity.
The situation was a living reminder of the thin line that often separates good and bad investing.
Most poor investment decisions looked good when made, because no investor sets out to make a mistake. But there are any number of bad habits that investors have that frequently produce poor investment results.
Here are some of the characteristics that bad fund investors share. If you see your own behavior in these common problems, it may be time for a change, before you're wondering how your portfolio could have let you down, too.
They have a collection, not a portfolio.
If you don't know what to buy, you may just get one of everything.
Once you get past a dozen funds, you are close to turning into a hobbyist, where the thrill comes from buying new funds rather than from owning great ones. That's not the best approach.
What's more, collections hurt performance: If you've got four funds in the same asset class, you've got a closet index fund, meaning the managers trade with each other, while you pay the freight and get performance that's not better than an index fund for the trouble.
Unless a fund replaces a current holding or puts you into a new asset class or investment style, adding it to your portfolio may be a mistake, no matter how good that fund looks on paper.
Their portfolio is littered with investments representing yesterday's strategy du jour.
I'm a big believer that there is no one right way to invest. As long as you are reaching your goals, it doesn't matter if you are a buy-and-hold investor, a market-timer, an asset allocator, a momentum player or anything else.
But if you don't have faith in your investment strategy and you keep switching from one to the next, you almost certainly have come up with the wrong way to invest.
There are several investment strategies that work well, says Kurt Brouwer of the Tiburon, Calif., investment advisory firm Brouwer & Janachowski. But if you bounce around and can't adhere to any style, you will always be picking what has worked lately. You need to be worried about what is going to work for you next, and for a long time to come.
They worry about daily performance.
If you can't count the days until you expect to need the money, worrying about daily or weekly price fluctuations will lead you astray. A few days of bad results may convince you to make a change, at which point short-term thinking overruns the long-term pursuit of investment goals.
They invest by inertia.
Successful investors have a plan for putting their money to work.
Investors who get paralyzed by fear or who can't find an approach that gives them the emotional discipline to stick with it wind up riding with what they've got. They allocate their investments by chance and accident, and find the portfolio's momentum really working against them when they decide to act.
The woman at the investor conference faced this problem. Had she managed her portfolio, rather than collecting funds and not adhering to a plan, she would not have awakened to find so many things wrong with her investments.
They can't explain why they bought a fund or what a fund does.
You can't make good choices without basic research and understanding.
The story behind each fund at the investor conference was that it had been recommended by someone on television, on the cover of a magazine, by a former financial adviser or by the deceased husband. It wasn't, "This fund added diversification to the portfolio, because I didn't have any international small-cap exposure."
Good investors know what a fund does, and have concrete reasons for buying it. When the fund changes, those investors know that it no longer serves the purpose for which it was purchased, a sure-fire sell signal.
"It's not necessarily hard to be a good investor, but it's very easy to be a bad one," Brouwer says. "The problem is that most people who are hurting themselves by the way they invest don't even realize it."
Chuck Jaffe is senior columnist for CBS MarketWatch. He can be reached at email@example.com or Box 70, Cohasset, MA 02025-0070.