In my previous article, I had pointed out the steps in successful investing. After reading that article, you may think that successful investing is really common sense. Well, you would be perfectly right in thinking that!
But then, wouldn’t more people become successful investors? Why is it that the landscape of investment is strewn with failure stories with successful investors found only rarely and far apart? What goes wrong for a majority of the investors?
This is because most of the investors make the following mistakes -
1) No Plan -
The first and foremost requirement of successful investment is a proper plan of investment. As the popular adage goes – if you fail to plan, you plan to fail. And the plan should be quantifiable, that is, it should be expressed in terms of hard numbers. It should contain your short term and long term objectives, your instruments of choice and proper asset allocation.
2) Thinking Short Term -
Most investors fall into the trap of achieving quick capital appreciation by ‘timing the market’ and dealing with instruments they are not exactly comfortable with. This is bound to lose money for you, sooner rather than later. Stay with your investments long enough to make them work properly.
3) No Diversification -
Laying all the eggs in just one basket is definitely a bad idea, and investing all your money in just one stock, or one business, or only in shares is a far worse idea. Diversify your portfolio.
4) Over Diversification –
If not diversifying is a bad idea; over diversification is a positive danger. Do not invest your money in so many different places that it is too small for each individual instrument. Spreading yourself too thin is bound to harm your investments. And it would be a nightmare to keep track of all of them!
5) Buying High, Selling Low –
Again, this is one of the most common mistakes that investors make. If you are buying stocks, the best strategy (it goes without saying) is buying low, and selling high. Look for the bottom of markets to enter, and sell on high levels. But do it in parts, do not buy or sell all at once. And definitely don’t overdo it.
6) Inconsistency -
As in all other walks of life, it pays (literally) to be consistent. Even if you have a very small sum to invest, do it regularly. That means keeping up the discipline, and not worrying too much about the markets.
7) Looking for Tips –
Do not scour the newspapers, magazines and internet for ‘tips’. It is good to learn and have an idea, but do not look for tips. And do not believe what your colleague tells what his cousin told him about a “very hot stock”.
8) Unrealistic expectations -
Despite all the hype that you get to read in newspapers and advertisement about “300% returns over the last 12 months”, the real investment rarely works that way. Regular investment would definitely work wonders over the long term, but expectations should be kept within reasonable limits.
9) Inflexibility -
Don’t ever fall in love with your portfolio. You should maintain a measure of ruthlessness in your stocks. If careful monitoring reveals that a pat of portfolio is not performing according to your plan or is a serious underperformer, take action. Do not wait to cut losses.
If after reading this article you think this is all common sense, it actually is! Stay away from these mistakes, and you will definitely become a successful investor!