What to Avoid for the New Year

Prior to this article, we had shared the top 5 investing resolutions for the new year. While it would be great to set investing resolutions for the new year, it can be just as important to recognize the actions that investors should avoid as well. With that in mind, I would like to share three things to avoid for the year ahead:

Resolve not to check share prices every day

The daily gyrations of share price rarely provides any new useful information for the Foolish investor. In fact, it may prove to be detrimental to our investing results instead. Author Jason Zweig explains further in his book Your Money and Your Brain:

“… when it comes to investing, our incorrigible search for patterns leads us to assume that order exists where it often doesn’t”

In this case, looking at the daily movement of share prices can trick our mind into assuming that “something has happened”. For instance, if a company’s share price drops for five days in a row, it may make us think that something bad has happened to the company or that we made a mistake.

As Foolish investors, we should be making our investing decisions based on the health of the business, and not based on the direction of daily share price movements.

Resolve not to pay attention to predictions regarding the market

Recently, a newswire report looked at accuracy of predictions for 2014, and made a succinct conclusion: “Here’s what we know for certain: almost nothing”.

As it turns out, there wasn’t much that “experts” could have predicted up front. Furthermore, behavioral finance suggests that experts can grow overconfident in their own predictions because of the “illusion of knowledge”. Or as our Fool US colleague, Morgan Housel would share in his tweet:

It is this “illusion of knowledge” that we should strive to avoid, as overconfidence can be bad for the health of your own investing results.

Resolve not to invest with a timeframe measured in “months”, “weeks”, “days”, or “minutes”

When we invest with a short term mindset, we will put ourselves at the mercy of unpredictable daily share price gyrations. Furthermore, the increased trading action in the short term can also lead to substantially higher trading costs. As a Foolish investor, we have the opportunity to save on these trading fees and divert it to better use.

If we can extend our holding periods to years or even decades, we may stand a stronger chance in beating the SPDR STI ETF (SGX: ES3), a proxy to the market barometer the Straits Times Index (SGX: ^STI).

We have come to the end of the article but the Foolish reader is very much welcome to share additional ideas. Do you have things that you would resolve not to do this year? Sound off below.

Fool on!

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.