The biggest risk which investors face is themselves, because the mistakes they commonly make are based on their own behaviour and personal biases, warns Morgan Housel, a partner at Collaborative Fund in the US and a former columnist for the Wall Street Journal.

The challenge is that investors’ attitudes towards risk are heavily influenced by their own experiences in life – including the country and culture they grow up in, he said at the Allan Gray Investment Summit in Johannesburg last week.

“Everyone has their own unique experience of the world,” he said.  “If you are your own worst enemy and pose the most risk it’s a scary reality to face, but to me there’s a lot of optimism in it. You have no control over what the stock market or what the economy might do next, but one thing you can control is your own behaviour.”

To overcome the personal bias which dictates their behaviour, investors should talk to as many different people as they can, particularly the ones with whom they disagree, Housel advised. Expanding personal perspectives and understanding what drives human behaviour is crucial as stock markets are often irrational, counter intuitive and unpredictable, he added.

As an analogy for counter-intuitive investor behaviour, Housel used analysis of how people had put their lives under more jeopardy, rather than less, after the 9/11 terror attacks in the US by opting to drive, rather than to fly. While driving may feel safer, research and data indicate that more people die in cars in 11 days than flying in 30 years. One of the most common destructive investor behaviours is buying and selling at the wrong time.

“Volatility is not the biggest risk in investing,” he said. “The biggest risk is the action that you take in response to that volatility – you think it is going to make you safe but it actually injects substantially more risk into your investment portfolio.”

Another of the most common mistakes which investors make is not realising the power of simple methods, simple rules, and simple techniques, he maintained. “Spend less money than you make, save the difference, buy a diverse portfolio of great companies and be patient – that’s 90% of what you need to know to be a successful investor over time,” he said.

Another mistake inhibiting investor success is not being committed to the long term.

Housel described the experience of the Wright Brothers, two American inventors who built and flew the first successful aeroplane at the start of the 20th century. They initially received little media coverage, and it was years before they were recognised for their role in inventing the machine that had such an overwhelming impact on the world’s history. Many others were trying to build aeroplanes at the time but the reason the Wright Brothers succeeded was that they never gave up. Patience is key.

“When innovation is measured generationally, results shouldn’t be measured quarterly,” Housel said.

This is an important lesson for investors. “If you adopt a long-term approach, between 10 and 20 years, or more, don’t judge the daily performance of your investments. Successful investors have the patience to stick it out,” Housel concluded.