INVESTING MISTAKES TO AVOID

You can save yourself a lot of money and aggravation if you can avoid some of the most common investing mistakes.  Let’s review some of the biggest ones that many people make.

Emotional Investing

One of the most common mistakes in investing is to use emotions and not discipline when making investment decisions.  Fear and greed are the main culprits here. 

Fear causes people to sell at the bottom and greed causes people to buy at the top which the exact opposite of how to make money investing.

Logic and reason should be at the heart of all of your investment decisions. 

When making a big investment decision, take a deep breath and examine your motivations.  Be honest with yourself and take a measure of the role of emotions in your decision. 

Chasing performance

Many people are prone to chasing the hottest stock or the hot fund.  Just because a stock or a fund has had a good run recently it doesn’t mean the trend has to continue. 

The most important thing about any investment is where it is going in the future, not where it has been in the past. 

Stock funds that have just posted incredible results probably made a big bet on a stock or two and it paid off.  Quite often their future performance reverts back to below average performance.

Gambling

Investing and gambling are two different things.  Gambling relies on luck.  Good investing relies on discipline and solid strategy. 

Gambling in the financial markets takes many forms.  Making a big bet on one hot stock is a form of gambling.  You could win big, or you could lose big.  Acting on stock tips is another form of gambling.  

If you are exposing your assets to a big risk of loss, you are gambling. 

Predicting the Near-Term Future

All investing requires some optimism about the future.  I am extremely confident that the large cap US stock index funds will grow by 9% to 10% per year over the long term.  This belief allows me to invest aggressively in those funds.

But I have no better idea than anyone else how the financial markets will perform in the next three months or six months.  Lots of people make predictions about these things, but they are wrong most of the time.  The short term moves of the financial markets are too hard to predict.  There are just too many variables.

If you shift a lot of money into bank stocks, for example, because you think the financial sector is going to do very well over the next year, you are gambling.  You might have a solid argument and good data to back up your beliefs but getting the exact timing right is almost impossible.

Using the Wrong Time Horizon

People should be measuring their investment performance over long periods of time – 10 years, 20 years, 30 years or more.  As I just mentioned, anything can happen in the irrational financial market in 3-month, 6-month or 12-month time periods.

When you pay too much attention to short-term results, you are likely to change strategies too frequently.  It can be another form of chasing performance and you are probably going to make changes that hurt your investment results. 

Build an investment strategy that is positioned to win in the long-term and stick with it.

Investing is a long-term game and it requires discipline.

Happy Investing,

Phil

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Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.

Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.