There are very few things in life that I consider myself an expert in, and investing is not one of them. If I was then I would have been a millionaire and would not be going to work every morning. I have not only earned PhD in my professional subject, but I also have PhD in investing mistakes.
The biggest challenge for me was to identify the top 3 (and not top 10 or top 5). This made me think hard to rate which would be top 3 investing mistakes.
At the end of the post, I will pass on the baton to my fellow bloggers to come up with their mistakes. The more we share and create awareness, we all will be a better investors.
(1) Not having a well defined strategy
The most important aspect of do-it-yourself investing is to have a well defined plan which includes style of investing, time line, diversification, asset allocation, and how you are going to manage it. In my early days of investing, I thought I had a plan. I thought making few quick trades, smaller incremental capital appreciation, etc was my so called well defined plan. I was new and hence, the allure of tipster’s and advisors tips was just too strong. Alas! that was not to be. It was a little bit of this, a little bit of that, and I end it became as little bit of everything. Not anymore. I fired my tipster a long way back.
Now I have more time to do other things and I can sleep peacefully every night without thinking what trade I have to make next day.
(2) Checking Value of my Holdings Daily and Listening to Market Chatter
I always called myself a long term investor, but I used to check the value of my stocks daily. The problem with this is that it leads you to making emotional decisions. It will force you to make decisions which are against your guts and your own intuitions. Best example is during school/college exams. You fill in the blanks or tick mark an answer, you somehow get a peek at other’s sheet, and it’s a different answer. What you do, you make a change in your own answer to realize later it was wrong. In fact, your original answer was right.
(3) Not Doing My Homework before Buying Stock
Numbers do not lie, and hence quantitative analysis is easy. Just look at two years worth on data, crunch them and wal-lah, you have magic wand. The latest in quantitative analysis is the chart reading, take a snap shot, draw few lines and wal-lah, that’s what going to happen next day or next week. If it were that easy, every investor (and the tipsters) would be millionaire. Nobody would be going crazy for few bucks in every trade. Nobody would lose money.
Along with number crunching, qualitative analysis is also important. It takes time and cannot be automated. Getting to know a company is like getting to know your friend. They are all unique and will force you to evaluate in different way. Like friendship is life long, deciding to invest in a particular company should also be for long time.
In few days you may have an acquaintance, but friendship takes a long time to build. Similarly, I may earn few bucks in trades, but it takes a long time to build wealth.
Those were the top three mistakes among the bazillion mistakes (pun intended!) that I have made. I am now passing on the baton to other bloggers to come up with their list of top three investing mistakes. I am going to tag three of my fellow bloggers to write a post on their mistakes on their own blogs .
Readers of this blog should visit their sites to read their experiences.
beginners guide, investing mistakes