5 Common Investing Mistakes We All Can Make Without Realizing It
As investors, we are subject to making mistakes from time to time. Most of us are aware of some of those mistakes, such as failure to diversify or chasing a hot stock. But we can make other mistakes, often without realizing we’re doing so, that can cause us harm.
Here is a look at some of the unforced errors to which we all can fall prey.
Mistake # 1 - Rearview-mirror Investing
We all tend to invest on the basis of what has happened in the recent past. Doing so is a natural human trait. After all, if we trip over a step, we will be sure next time that we do not make the same mistake. In other words, we learn from our experiences and adjust our behavior accordingly.
But when it comes to investing, we need to think ahead, not backward, making this one of the hardest investing errors to correct.
When stocks are soaring, we investors simply cannot believe that they will go down sometime, let alone in the near future. When stocks are plummeting, we tend to avoid stocks, believing that they will continue to go down and are probably the worst investment we can make at the time.
We base our beliefs on recent experience, just as with the step on which we tripped.Avoid this mistake by focusing on what the future could hold, not on what has happened in the recent past.
Mistake # 2 - Waiting To Act Until It’s Too Late
We might realize that the market could plunge at any time, but, we reason, we can always get out in time before the crash takes hold.
The trouble is that a major crash can take place overnight — and then it is too late to get out without losing your shirt. It’s also extremely difficult to tell whether we are at the start of a sharp fall or just in a correction.
Should the market drop a percentage point or two is that a sign of an impending crash? If it drops 5 percentage points, should we run for the hills? We cannot be sure as the market might turn upward again and we will lose out by selling at the bottom.
The opposite is true in a market upturn, of course. Don’t make the error of waiting for the market to tell you it is changing and timing your order in the hopes of the change.
Mistake # 3 - Listening To The Gurus
Almost every day market gurus issue their forecasts. The market will crash, sell now while the going’s good, one will say. Often that same day another says to invest because even better days lie ahead.
The truth is that no one knows what the future holds. An unexpected event can occur to cause a market to crash or to boost a market to new highs. We have no idea what it will be or when it will occur. Nor do the gurus.
And, let’s face it, we live at a time when unpredictable surprises are more the norm than the exception.
Research has shown a market commentator can be right once in predicting a major market move. Few are right twice. But seldom, if ever, in history has a well-known forecaster been right three times on major market moves.
Don’t listen to the pundits. No one knows for sure what is going to happen next in the world that can affect the markets. And they don’t either.
Mistake # 4 - Trying To Predict The Future Ourselves
Of course, whatever we might think, we are unlikely to be any better than the experts at predicting the immediate future.
True, the temptation is great. But just let’s admit none of us can predict the future any better than anyone else, no matter how much research we do.
All we can know for sure is that historically stocks have always gone up over the long term, which can be more than 10 years.
Mistake # 5 - Going With The Consensus View
At times, with all the noise out there, it is difficult to know what the consensus view is.
But, once you determine that most investors are agreed on a market direction, it’s best to avoid it. History has shown that, in most cases, the consensus view is nearly always wrong. Don’t follow the crowd.
Should you find yourself drifting into making any of these 5 common investing mistakes, stop and think. By realizing that we are about to slip into an error of thinking, we can all become wiser and more careful investors.
About the author:
Andrew Altman is the editor-in-chief of an informational website SlickBucks.com. SlickBucks aims to help beginner investors and traders by reviewing financial products and brokerages, sharing advice and tips and publishing helpful guides for new investors and help them to get the kind of financial wealth they desire.
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