With the second quarter behind us, investors are evaluating how well their holdings have performed. The midpoint of the year is as good time as any to evaluate what you did right or wrong in a very challenging year.

Given how much panic selling we saw at the end of March, there surely are quite a few people who are disappointed with their results. If you are one of those folks, now is the time to determine where you went off track.

Rather than tell you what you did wrong, ask yourself these questions. Your answers will help send you in the right direction: 

1. What is my investing philosophy? It may be a basic question, but it is one some people skip: Am I an active investor, hunting for alpha (market-beating returns), or am I a passive indexer, content with beta (market-matching returns)? For those trying to beat the market, are you succeeding? If you are, then congratulations! You're one of the few. But ask yourself this: Is your process repeatable and reliable, or did you just get lucky? This question remains one of the most challenging in all of active management.

About 40% of active fund managers manage to beat their benchmark in any given year, but net of costs and fees, almost none does so consistently over 10-year periods. 

If the active approach isn't paying off, another question awaits: Would you be better off in the long run embracing a low-cost, passive indexing strategy? 

2. Where did I go wrong, and how am I tracking it? Be like Ray Dalio: Don’t hide your errors, but embrace them as a way to become a better investor. 

Managing this is a two-step process: First, figure out why you might have gone astray. Were you trading too much, incurring fees along the way? Did you hold onto stocks that you should have sold? Are you part of the Robinhood contingent buying bankrupt companies such as Hertz or JC Penney, which are never likely to pay off? Were you late to investing in Tesla or Netflix when most of the big gains were in the past?

Once you find your weaknesses, the next challenge is to identify them sooner. What objective measures are you using to tell you an investment isn't working out? How are you distinguishing temporary setbacks and permanent impairment of capital? You need to develop an objective way to determine if an investment was in error so it can be adjusted. It is acceptable to be wrong; it happens to everyone. But it is inexcusable to stay wrong.

3. How strong are my convictions? This question can confuse some investors. It is not a measure of enthusiasm or belief strength, but rather, how warranted is the confidence you place in your philosophy. Does your strategy have a firm, analytical basis in reality? Not merely a feeling or instinct, but something more specific: Do you have a well-researched plan that delineates how you are expressing your beliefs in the markets?

Those investors lacking a high degree of conviction often become more easily influenced by outside forces. They develop self-doubt, bounce from one fad to the next, slavishly following financial Twitter, cable TV and punditry. Low-conviction strategies are not the path to success.

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