Mistakes and pitfalls in investment you should AVOID!
I know I’ve said this before, but I guess I shall just repeat again because I cannot stress enough how often people, even experienced investors, make such mistakes.
Before you enter investing, you must ask yourself, can you fulfill these 3 basic requirements?
1. Are you knowledgeable enough?
Do you know a lot about the company you are investing in? Do you know its fundamentals and growth prospect? Would you like to be owner of the company yourself? Are you aware of the trends in the business world?
If you are employing technical analysis, do you know enough about the technical indicators and price and volume trend? Do you have the necessary charting skills?
2. Are you able to control your emotions?
Are you able to think with a rational mind, and not let greed, hope and fear rule your head? Do you base your buy and sell decision on hastily following the crowd without proper analysis on your part?
3. Are you disciplined?
Do you follow the investing system you set for yourself religiously? Or you constantly shift your strategy just to justify your actions?
These are the 3 areas which many investors, novice or experienced, have problems with. In identifying these danger areas, we can question ourselves whether we have made the same mistakes, and then focus on not repeating them in future.
Here are some other mistakes, which are not as major, but no less important
4. Investing with money which one cannot afford to lose.
That is a big no-no. Investment is supposed to help you to accumulate wealth. Even with the most careful of planning and analysis, one cannot eliminate the risk totally, so investing with a sum which one can afford to lose is a rule which we cannot deviate from.
In that way, in the worse case scenario, if we lose 100% of our capital, we can still survive.
5. Allowing losses to accumulate and quick to take profit.
Capital preservation is one of the top most priorities. Once it?s clear you have made a mistake in your investment, you should cut loss quickly. Many people sit on a paper loss, and rationalize that as long as they don?t realize it, there won?t be any real loss. Dream on!
By the time they wake up from their mistakes and take action, their losses would have been much greater. Warrant Buffet style is to focus on not making any loss before thinking of getting profit. If the greatest investor of our time thinks that way, we won?t go very wrong if we follow the same way.
6. Not having the necessary patience.
Investing without patience is really like shooting yourself in the foot. Especially so when you are taking a long term approach. If you work so hard in evaluating and finally selecting a company based on good fundamentals, you should have the patience to wait for its true value to realize.
Very often you will find the price fluctuating, and moving sideways without making any real headway. It?s very common. If you are very sure of your stock selection, you should have patience to see it out. Some people get tired of waiting, and cash out for a small gain, only to see it rise further.
Patience pays.
7. Selling winners and keeping losers, instead of the other way round.
Doing so will only ensure that you will be net negative territory in no time.
8. Not having a long term goal.
We should always start something with an end goal in mind. Investing is no different. Many investors do not set a long term target, which explains why many of them incur losses or fail to beat the market average.
My aim for our portfolio is 15% or more gain per annum. It?s not an easy target, but it?s achievable. With 15% gain every year, the compounded gain will enable us to double our initial investment within 5 years. So 15% is a good starting point.
9. Not having a proper investing strategy.
Investing without a strategy is like going to war without war plan. Akin to planning for doom!
No strategy = Irrational trading activity = No consistent profits.
Ask yourself today, are you guilty of these mistakes?
If yes, I hope you know what to do!
[tags]investing, investment, mistakes, pitfalls, strategy, discipline, emotions, controls, patience, long term goal[/tags]
7 Comments