Do This Simple Thing If You’d like to Get Better at Investing

For serious investors, one important aspect of their daily investing activity is to keep an investing diary – and this is also the simple thing you should if you’d like to get better at investing.

Why? That’s because we should always know why we’ve made an investment at the time when the decision’s made. If not, we can be influenced easily by the market over the course of time and forget about the real reason we had bought a particular share. In turn, this might then lead us to make poor buying and selling decisions with the shares we already own.

For example, let’s say you had chosen to invest in infrastructure and marine engineering conglomerate SembCorp Industries Limited (SGX: U96) back at the start of November 2012 based on an analysis that its profits will increase significantly over the next few years. But back then, you only took a mental note about this thesis when you made your purchase of the company’s shares at S$5.34 each.

More than two years have passed since and SembCorp Industries’ shares have fallen by 14.4% to S$4.57 currently. In addition, the conglomerate’s earnings per share (EPS) had also decreased from S$0.471 to S$0.434.

Yet, because of the unwillingness to sell at a loss, you now reassure yourself that you had invested in SembCorp Industries in the first place for its consistent dividend (the company’s dividends had been in a tight band of between S$0.17 and S$0.15 per share in its last four financial years). So, you will now continue to hold on to SembCorp Industries regardless of its earnings performance.

What has happened here is that you had tried to justify your investment based upon the prevailing situation and not based upon your initial analysis.

If you had made a record of your investment thesis with SembCorp Industries in the first place (an expectation of an increase in profit), a review of the investment today would have easily shown that the thesis did not quite pan out. And so, it might be wiser to sell and look for better opportunities instead of hanging on.

A Fool’s take

Recording our thoughts on an investing diary does not require a lot of effort but yet can help increase our accountability to ourselves and our investments and in the process, make us better investors.

This is just one of many ways which can help us become better investors. For other advice on how to invest better, have a look at our special free report titled What Every New Singapore Investor Needs To KnowIt is a quick five to 10 minutes read on what’s really important about the share market and is a great guide for both new and experienced investors alike regarding the basics of 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 contributor Stanley Lim doesn’t own shares in any companies mentioned.