1 Investing Enemy You Should Avoid

There are good traits to learn for investing and then, there are things to avoid.

If there are enemies to good investing, they can take the form of undesirable behaviours like overconfidence and impatience. Like a muddy swamp, traits like these may hold us back and hamper our progress toward being better investors.

Taking note of their existence may help us avoid them.


Here’s a great take on overconfidence from financial journalist Jason Zweig:

“The single biggest danger any investor faces is overconfidence.

Coming to believe that you know more about something than you do. And the biggest contributor to overconfidence is something that psychologists call confirmation bias – which is the human tendency to gather and pay attention to information that confirms the point of view you already hold.

… [Speaking on confirmation bias] all you are doing is sitting in an echo chamber of people telling you that you are right and everyone else is wrong. And only the people who agree with this select community you constructed are possibly right about anything.

You should seek out as many people who will challenge your most cherished beliefs as you can find. And that is what Warren Buffett and Charlie Munger will tell you is the secret to their success”

I think Zweig is spot on here.

If we focus all our attention only on the good things that are happening to our stocks, we may miss the potential issues that could crop up. No business is perfect, so if everything is going well, we may want to question what can derail its progress.

Avoiding overconfidence is one of the reasons why I chose to write the bear thesis for vehicle inspection unit Vicom Ltd (SGX: V01) earlier in the year, even though I own its shares.

Similarly, if your shares have been doing well for the year, you may want to keep yourself in check by observing whether the rise in its share price is due to strong earnings growth or due simply to an overly-optimistic stock market.

Foolish summary

There can be things or traits that trip us up as investors. Overconfidence is one investing enemy we may want to be wary of.

For more investing tips and tricks and to keep up to date on the latest financial and stock market news, sign up now for a FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock SingaporeIt will teach you how you can grow your wealth in the years ahead.

Also, like us on Facebook to follow our latest hot articles. The Motley Fool's purpose is to help the world invest, better.

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 owns shares in Vicom.