How To Avoid Common Investing Mistakes

According to the US Securities and Exchange Commission, investors tend to repeat the same mistakes time and time again. The common mistakes have been covered in detail in a recent Sunday Times article by their Senior Correspondent Goh Eng Yeow. These include overconfidence, overtrading and following the herd.

There was, however, one notable omission, namely a misplaced belief by many private investors that professional money managers can beat the market. Truth is many of them can’t. According to a recent Standard & Poor’s Spiva survey, 49 per cent of actively managed funds were beaten by their benchmarks.

So with odds that are no better than flipping a coin, why do so many private investors make the common mistake of handing over their money to fund managers to look after?

And if you thought the one-year statistics were awful, they get even worse over time. Over three years, 57 per cent of fund managers were beaten by their benchmark indices, and over five years 61 per cent underperformed. In other words, nearly two out of three fund managers can’t even beat the index.

These are not great odds, though I will admit that some fund managers are very good at what they do. In the main, these managers tend to be cynical, sceptical and contrarian. They tend to be hard-nosed and strong enough to hold their nerve when markets go against them.

As private investors we too can develop those traits that should help us on our way to become better investors. That’s because the key to successful investing is not difficult: Buy shares in good companies; don’t be overconfident; don’t overtrade and don’t follow the crowd.

By handling your own investments you save on costly charges, which is why most professional managers fail to beat the market.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.