Investors often behave like two-year-olds

Thomas upset he can't ride all of the rental equipment outside Home Depot

My two year old loves to play a daily game where we offer him milk, and he asks for it in his Lightning McQueen bottle. We pour a few ounces in. Then he pulls a switcheroo and asks for the milk in his Mater bottle. (Didn’t see that coming!) Then back to McQueen. Back to Mater. It usually spirals into a terrible twos tantrum when we don’t give him two full bottles of milk.

As my algorithm has told me too many times to count - he is learning to regulate his emotions and make decisions.

Would you be surprised if I told you most people invest like two year olds? What do I mean by that?

Most investors actually underperform the very investments they hold.

Wait, what?

Most investors who invest in a fund don’t actually get the same return the fund as a whole achieves.

You might think I’m overlooking the expense ratio (the cost of operating the fund) or taxes. No, that’s not it. After adjusting for these expenses investors still underperform their investments.

Why?

They can’t manage their own behavior: they chase performance when the market is going up, buying after an increase. Then they sell during a decline to ‘avoid the loss’, when actually they’ve already experienced the dip and the best thing they could do is ride it out and let the market come back.

Don’t take my word for it - look at the research done by the powerhouse Morningstar.

https://www.morningstar.com/financial-advisors/these-bad-habits-hold-investors-back-peak-performance

2026 provides us with a good example of how this happens.

The S&P 500 started out trending higher, approaching an index value of 7,000 - a record high.

Then came March. Our own Ides of March, if you will. The S&P 500 and NASDAQ saw about a 5% dip that month. Definitely a noteworthy dip for a short time period.

Now we’re in April. As of the time I’m writing this the S&P 500 is up over 5% for April, and the NASDAQ is up over 6%.

And I’m not even looking at the international or emerging market stocks - those swings have been even greater!

So if you merely stayed invested and let the swings happen, you’d have positive performance in nearly asset class for 2026.

Stop investing like my son Thomas. Invest like Doc Hudson instead.