Advice may be cheap but when it comes to investing, it’s often the cause of much grief. It’s better for a prudent investor to be enlightened and know what to look out for in order to make the right decisions. Below we’ve listed seven common mistakes as seen by investor Mike Patton. An awareness of these traps will enable you to do your best to avoid them or get out of them.
- Emotional decisions: if you’re investing with money you’ve worked long and hard for, the thought of its potential loss can set up emotional barriers. Furthermore, it’s easy to justify profits and losses in hindsight. To avoid this, set parameters and expectations before investing.
- Holding on to losers: many hold on to failing stocks in the hope that they will rebound. Remember, money that is tied up in a losing battle could be better invested and making you money. If you’ve set your parameters, then you should know when to cut your losses and start moving forward.
- Impatience: we’ve been trained socially to look for instant gratification. We want to invest today and see the stock go up tomorrow. Stocks don’t work like that; they take time and need to go through their cycles. Knowing how to analyse and recognise trends will help you invest at the right time and hold those investments as they appreciate.
- Looking only at past returns: value investors look for stocks that perform well consistently as it is a good indicator of how that stock should perform in the future. However, looking at how investments perform when the market is down is also a good idea. Those that suffer less probably have a good risk mitigation strategy and are therefore safer.
- Listening to colleagues: when you’re investing your own money, you should take full responsibility for how you do it. Don’t simply follow recommendations from friends and colleagues. You’ve set parameters for the investments you make and done the research on them. Make sure that you are as prudent with recommendations as you are with your investments.
- Not selling: ‘nothing lasts forever’ and ‘the only thing that remains constant is change’ are two expressions that sum up investing. You’ve set your parameters and, using the strategies on this platform, know when to sell. Selling winning stocks will help you secure your investments, increase value and allow you to invest further. Letting your investments ride keeps them in danger. Remember: buy low, sell high.
- Arriving late: this is another issue that is strongly tied to emotions – in this case, fear. After a bear market, many investors fear that the market is not fully recovered and wait to invest until all their emotional boxes have been ticked – at this point, though, it is often too late. Knowing how to read charts and setting the parameters for buying and selling will help you overcome the emotional barrier that brings you to the table too late.
These seven points highlight the importance of a strategy before you start investing. Use of the proven strategies on this platform will help you make rational decisions when it comes to investing and not lose your hard-earned money through emotional choices.