How To Be A Better Investor

LightBulbPrivate investors tend to make the same mistakes again and again. That’s why many give up because they get frustrated at getting nowhere, fast. But here at The Motley Fool Singapore, we believe that everyone can be a better investor if they avoid some common mistakes. Here are the three of the most common ones.

Mistake #1: Holding onto losers   

When investors first start buying shares they do so with good intentions – to make money. However, should things go awry and the shares perform badly they tend to hang on and wait for something good to happen. Consequently, through denial, a portfolio may, over time, become peppered with loss-making shares.

That’s why it is important not to anchor investment decisions on the price paid for a share. Instead, write down the reasons why you are buying shares in a company at the time of investment. We call this journaling. That way if the reasons for investing in the company change appreciably then you could reconsider your position.

Mistake #2: Diversify

A sensible approach to good investing is to make sure that you don’t put all your eggs in one basket. If there is one lesson that we have learnt from the financial collapse of 2007, it is that owning too many shares in any one sector, such as banks, could be as dangerous as being overweight in any one company.

This doesn’t mean you need to spend lots of time managing your investments. Instead, just keep an occasional eye on your portfolio to ensure that you are not too dependent on just a handful of companies.

Mistake #3: What’s my style?        

Not knowing why, how and what to invest in is probably another common mistake. When we first start investing it is unlikely that we will have identified a clear style that suits us. Consequently, we may buy a bit of this and a bit of that. This is understandable because it can take time to identify an investing style that suits our individual personalities.

After all, asking new investors whether they prefer income, growth, garp, blue sky, value or, for that matter, any other style, is almost as unfair as asking young children what they want to be when they grow up. However, after you have bought a few shares and invested for a little while, it should slowly become apparent what you like to invest in.

Knowing me, knowing you…Aha!

Here at the Motley Fool, we are a broad church that embraces all styles of investing. We believe that there is no right or wrong style – just one that suits you best. It is unlikely that you will know at the outset which one it could be. But once the penny drops, and the cloud of confusion lifts, it will suddenly become a lot clearer. I call it the “Aha!” moment – the “light-bulb” moment when you become a better investor.

The Motley Fool’s purpose is to help the world invest, better. Click here now for your FREE subscription to Take Stock — Singapore, The Motley Fool’s free investing newsletter. Written by David Kuo, Take Stock — Singapore tells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead. 

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.