Investing is hard. And making money is fun.
If you want to keep a good portfolio, the key is in the state of mind, rather than the knowledge you have.
We can be easily affected by emotions, and thus make some wrong decisions out of it. Even the professional investors could not get away with the impact of emotion and pressure.
During investment, there are some common mistakes investors would make.
The crave for materials is what keeps the economic machine running. Yet, if we become too unsatisfied to lose sensibility, we might eventually end up making investment mistakes.
One of the common mistake is chasing yield.
It is always tempting to double or even triple your investment buying what seems to have “the best return”.
Note: Past returns do not indicate future performance, and the highest yields carry the highest risks! Focus on the whole picture; don’t get distracted while disregarding risk management.
2. Trade too frequently
“The stock market is a device for transferring money from the impatient to the patient.”
What happens when you look nonstop on your yield? You get ups and downs as the number goes up and down.
When you see it goes down, you want to flee. When it goes up, you want to retrieve. And thus your investment decisions become irrational. And your well-being are tight with the numbers.
Not only that, the problem when you trade too often is that you tend to generate lots of transaction fees as well as lots of tax implications. Those transaction fees chew up and swallow your gains quite quickly.
Note: Make adjustment and modification constantly can reduce you returns through more transaction fees. It might also put you in unseen risks.
Confident is good. Over-confident, especially when it comes to investment, can be a bad thing.
After tasting the sweetness of the initial success, some investors gets really confident and contribute their success to their trading skills and ability, and then start trading too much and too often.
It happens quite a lot in a bull market. When in a bull market, everyone is an expert, and gets blinded by the win. It usually ends up with bigger failure.
When you are too confident, you might skip due diligence, not reviewing investments regularly, and trusting your guts way too easily.
Note: Be respectful for the market. Always bear in mind of risks.
4. Following the crowd
Following the herd is very common when it comes to investing. It refers to the impact that public opinion or behavior has on individuals.
Only a few people can get away and keep their independent thinking.
When affected by the crowd, investors tend to get cognitive disorder, which leads to wrong decisions. And it’s rather risky.
A bull market is the main reason ordinary investors fail.
Note: by the time everyone tends to get involved with a story about shares rising, it is usually after the stock has reached its peak.
If you have made a mistake, cut your losses as quickly as possible.
(Images from the internet)