We all make mistakes in investing – this is a common phenomenon as we are only human. During my years of investing, I have spoken to many investors who have lamented over and regretted their mistakes. I began to notice a pattern – there are some mistakes which a majority of investors seem to make time and again. Some of them eventually learn from it, but others still do not seem to absorb the lessons from these mistakes.
Even though some of us continue to document our investment mistakes, many others stumble through investing either not realising they are making grave errors, or not remembering the lessons from such errors.
By highlighting some of these errors, I hope to make investors more aware and take measures not to repeat such mistakes. Investors can then work on improving their processes to ensure they do not fall prey to these common errors.
Not doing proper research and due diligence
Investing in great companies is the ultimate goal for an investor, but the steps to be taken to ensure that a company is indeed great require hard work and diligence. Many investors tend to prefer short-cuts – listening to hot tips, recommendations from friends or reading up superficially, before investing.
Doing insufficient research is a common mistake among investors, and may lead to devastating consequences. Without proper due diligence and risk control, investors may end up sinking money into a dud, or into glamorous companies, or worse, into dodgy, potentially fraudulent names which have been hyped up.
Adopting a gambling or trading mentality
Another common mistake is for investors to adopt a gambling or trading mindset when it comes to buying and selling shares. They hinge too much of their hopes on share price changes, instead of focusing on how the underlying business is doing. Without realising it, this mentality influences their buy and sell decisions, making them trade more frequently and resulting in higher brokerage fees incurred.
The lack of focus on long-term investing would be detrimental to their long-term wealth building goals, as such a mentality may result in an investor chasing prices in order to “buy high, sell higher”, without understanding the underlying fundamentals of the business. When share prices come crashing down due to financial gravity, these investors might end up losing their shirts.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.