Investment mistakes carry heavy financial impact – that’s why they must be avoided. Naturally we are all going to have our ups and downs. However, some of the mistakes new and old investors make are common and are by no means reserved entirely to intelligence.
Thorough learning can help you avoid loss, leaving more profits in your pocket – accelerating your journey to financial freedom. The good news is that most of these mistakes can be avoided simply through awareness.
Here are some of the most common mistake to help you avoid them in the future:
Emotional investing – The No 1 killer of investment return is your emotions. Never let fear or greed overtake you. Focus on the bigger picture. Stock market returns may deviate wildly over a shorter time frame, but over the long term, historical returns for large stocks can average higher.
Lack of knowledge – Avoid investing in businesses you do not have much knowledge of. You should not be buying stock in companies if you don’t understand the business models. Often investors gravitate towards the latest or most trendy sounding industry. If you do invest in individual stocks, make sure you thoroughly understand each company before you invest. The golden rule to remember is – if it sounds too good to be true, it usually is.
Lack of patience – Slow and steady often wins the race, it’s no different in investing. A slow, steady and disciplined approach will go a lot further over the long haul than going for the last-minute all in approach. Expecting portfolios to have an overnight turnover or do something other than what they’re designed to do is a recipe for disaster. Keep your expectations realistic regarding the length, time and growth that each stock will encounter.
Investing without a plan – Never underestimate the importance of planning for your financial future. People who are methodical enough to create a written investment plan can expect to outperform their peers, not by just a few percentage points, but by multiples. You must create a disciplined plan based on your mathematical expectancy because anything less is gambling and not investing.
Not trusting your gut – Don’t make the mistake of solely trusting the experts. You should always operate from the assumption that the investment advice you receive may be biased. Investment outcomes are always probabilistic at best because the future will always be unpredictable. Nobody ever truly knows what will happen, including the experts. You should never mistake professional opinions for fact just because they carry an air of expertise, often your intuition will be your best guiding light.
Mistakes are part of the investing process. Knowing what they are, when you’re committing them and how to avoid them will help you succeed as an investor, by following these guidelines you will be well on your way to building a portfolio that will provide many happy returns over the long term.
Lloyd Buthelezi is the head of Standard Bank Financial Consultancy.