On a TV show, a young child is watching the news. The sharemarket
profile came on, with it’s big dips and occasional highs, and the
character remarked “It’s always going up and down. Why don’t we go back
to olden times and just trade in chickens?”. Surprisingly wise words
from a television character.
Yes, the sharemarket is always going up and down and our job, as
investors, is to make some predictions on that movement and aim to
capitalise on them. Anyone who tells you it’s easy is trying to sell you
something. Whether you’re a dab hand or completely new to the game,
Louise Bedford at Yahoo! Personal Finance wrote last week on some of the
sins of investing, inspiring the list below.
Predicting Wildly
If you think the shares are low or undervalued, then it’s a sensible
idea to buy them. Provided you strongly believe that they are going to
go up again. If shares are in a dive, then reconsider whether your
inclination to buy them is drawn from a sense of the daredevil or a
sense of yourself as a sensible investor.
Growth Vs Value Stock
Get rich quick has never really worked for me. I’m more of the slow
and steady field of action. In investment, that probably means a bias
towards value stocks (ones paying steady dividends) as opposed to stocks
that will triple in value overnight. Overreaching,or greed, is a
terrible attribute when it comes to investment. It can lead to
overexposure and undermining our financial stability.
Ego
Economics is essentially emotional, but that doesn’t mean you should
be emotional when it comes to investment. Taking our egos out of the
picture will result in a far more rational and dispassionate approach to
our investment. Bedford suggests a written trading plan is essential-
an entry, exit and money management strategy. We might like to think
we’re big shots, but we’re unlikely to stay so for long if we don’t get
disciplined about the market.
Comparison
Everyone- no matter who they are, how sleek their car, how straight
their teeth- fights the same battles, day in, day out. Comparing
ourselves to others is not only unproductive (allowing us to make poor
decisions or ones that don’t match our actual situation) but also
delusional, as most people have aspects of their lives their not
sharing. Your brother-in-law made a killing on the stockmarket
yesterday? What about the day before that? Or his debt exposure? Before
we march off and try and compete, think about what really matters- our
long-term financial security and meeting our financial goals.
Ignoring The Golden Rule
Keep your losses small and let your profits run. Not bad advice for
all personal finance endeavours, to minimise the loss and maximise the
gain. This means being rational about our investments. Always have a
price point below your purchase price where you will sell. Never push
your gains to the breaking point. If you can keep your finances tethered
to a middle ground, without too much exposure in either direction, then
your investments will thank you for it.
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