2 Basic Investing Mistakes That You Shouldn’t Make

In expert tennis, 80% of the points are won, while in amateur tennis, 80% are lost. The same is true for wrestling, chess, and investing: Beginners should focus on avoiding mistakes, experts on making great moves.”

— Erik Falkenstein

Swedish economist Erik Falkenstein makes a good point. For those of us who are just beginning to invest, we may want to think of reducing errors first.

His point became more apparent while I was chatting with some ex-colleagues who are new to investing.

It dawned on me that there were several basic misconceptions about investing that may be prevalent among new investors. I feel that most of these errors can be easily avoided if only people were made more aware. So, here’re two such mistakes.

Mistake No. 1: The Expensive Stock – click here

Mistake No. 2: The Uncertainty Paradox

“U.S. is raising interest rates. Let’s wait for confirmation first”

Another common error is to assume that there are good times to enter and exit the market. Most of the time, these entry and exit signals revolves around the global concerns of the day. Among the many prevalent concerns are the potential rise of U.S. interest rates.

The problem with this approach is that there may not be a clear correlation between stock market returns and U.S. interest rate hikes.

My fellow Fool Chong Ser Jing has written on this topic before. He notes:

“Over the last 14 times that the Federal Reserve has increased interest rates, stocks [in the U.S.] actually rose in 12 separate occasions.

… there’s no iron law which dictates that stocks must rise or fall when interest rates climb and both scenarios have in fact happened in the past.”

What we do know is that the SPDR STI ETF (SGX: ES3), an exchange-traded fund which tracks Singapore’s market barometer the Straits Times Index (SGX: ^STI), has produced total annual returns of 7.21% from its inception in 11 April 2002 up till the end of October this year.

And, those returns occurred over time despite big changes in the interest rate environment. There were many other individual stocks that had enjoyed big stock price gains over the same period as well due to their business growth.

As such, our time may be better spent on focusing on quality businesses, paying a reasonable price for their shares, and then holding them for the long-term.

Foolish take away

If you are starting to invest, understanding the difference between price and value may be where you want to start; buying shares with low prices might not always work out. Trading around global concerns of the day might make it worse.

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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.