Many smart and successful people make some critical mistakes when it comes to the stock market. These errors have a significant impact on their chances of good, long-term market performance, said John Reese These mistakes, however, can be avoided, as the first step is to understand their essence. Then we can make improvements to our investment strategy and put a barrier for common investor mistakes.
1. Falling profitabilityInvestors are pursuing hot, profitable shares, funds, and strategies to find that they often enter the top when the growth has already been accumulated. If you see a share or strategy that has provided great profits, try to find out what has been done and whether this is a single case or a mere chance. You have to ask yourself whether the management, the strategy or the system is unique and will continue to produce similar results?
2. Forecasting short-term price movements (when you can’t hit 75%)Trying to define short-term market movements and entering and leaving positions is almost impossible. You need to be accurate about 75% of the time to get a better score than someone just was on the market. Remember, leaving the market is only half of the battle - you also need to know when to come back. The biggest profits on the exchanges come in quite a few days, and if you just stay away you will have a lot to catch up with.
3. Emotional investment Our emotions and moods can be our biggest enemy, especially when it comes to investment. Warren Buffett says, "Investing is not a game in which a person with 160 IQ beats another with 130 ... What is needed is a meaningful intellectual framework for decision-making and the ability to protect this framework from emotions If you can develop robust rules for your investment strategy and stay true to these rules, you can overcome the psychological difficulties that hamper good performance in the long run.
4. Not accepting the fact that the shares and FOREX are risky (in the short run)Peter Lynch once says - If you have one or two years, then investing in the market is like entering a casino and putting the money in black or red.The reason why stocks and forex offer excellent long-term results is that they are risky and have the potential for loss - especially in the short run. There will always be volatility and your losses will never be permanent until you make them permanent. With a longer investment horizon, there is less chance of potential loss.
5. Be afraid from the marketDue to the fact that stocks are risky in the short term, it is important that you are suitably diversified - not just the securities portfolio but also the asset allocation.Do you own different classes of assets - bonds, real estate, even cash? Diversification will help you survive trough the difficult times for stock markets when stocks show significant volatility.As Peter Lynch says, the worst for a long-term investor is to get scared from the market, and having a diversified portfolio will help him stay true to his strategy when stock exchanges are falling.
6. To worry about daily movementsIn an interview, John Bogal, one of Vanguard's founders, says he looks at how his portfolio is presented once a year. If you're the type who checks prices several times a day, you'll be tempted to act on random, short-lived trends. This can lead to a significant deterioration in your return.
7. Lose patience or disciplineAs an investor, you need to realize that even the best strategies can go through difficult periods of poor performance. As James O'Shaughnessy says, "Discovering good investment opportunities requires the ability to persevere, patience, and subordinate strategy even when it shows poor results ... Disciplined implementation of an active strategy is the key to good performance."
8. Do not believe in your strategy and sharesIf you do not believe in a share in which you invested or the strategy you are using in forex, you will probably not achieve good long-term results.Any good company, fund or strategy will have difficult times. If you do not believe in what you invest, you will probably leave in difficult times.Successful marketing is difficult - but not always for the reasons you suspect. While many people believe you need to be an incredible financial mind or have developed a complex strategy, the reality is that you do not have to be a scientist to beat the market. The common pitfalls of investors are that they allow emotions and short-term concerns to dictate their decisions.
