Top Investing Mistake #9: Not Doing More of What is Working
As people gain investing experience, they will have some wins and some losses. If they are buying stocks, they will have some trades that made money and others that lost money. If they bought real estate, they have some properties that are profitable and problem-free, and others that have little cash flow but provide an endless supply of headaches and problems.
Once people have some wins on their record they tend to do something very strange. Often they choose not to do what has worked for them in the past. Sound crazy? It is. But it is also part of human nature. We tend to get bored easily, and doing the same thing over and over, eating the same food each meal, and cooking the same recipe each day is a great way to become incredibly bored. So, people like to experiment and try new ideas and strategies.
This is paramount to financial suicide when it comes to investing. The whole purpose of investing is to figure out what works and do more of it. Yet most people do exactly the opposite: They figure out what works and then do something else! Instead of trying new ideas and seeing what happens, the best thing we can do is analyze the details of everything we did that worked.
For example, suppose we bought a stock that went up. We want to answer the following questions:
- What were the fundamentals of the stock when we bought it? What about in the past?
- What kind of news coincided with the stock movement?
- Were there any company announcements?
- What technical indicators correlated to the price movement?
- Was there insider buying or selling?
- What was the movement of the overall market and the industry?
- What information were people posting on the internet through blogs and articles?
The list goes on and on. The point is that we want to examine what happened in the minutest detail. Once we have a clear understanding of all the possible factors, we can look for a similar situation. Then, through the same analysis, we can form a clear idea of exactly when it is a good time to buy a particular stock. Or, for a fundamental investor, there might be a completely different set of information.
Human emotions are the #1 reason for would-be investors losing money. And boredom is one of the emotions that causes 90% of investors to lose money. We don’t need to be a slave to our emotions. And the best way to control them is to notice how they affect our investing decisions. Once we understand that, we can choose to ignore them and have consistent success as investors.
Related posts:
- Top Investing Mistake #10: Not Finding Your Groove
- Top Investing Mistake #4: Not Getting Enough Information
- Top Investing Mistake #15: Not Managing your Spending
- Top Investing Mistake #14: Not Managing your Effort
- Top Investing Mistake #2: Failure to Launch
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is one of my favorite financial books of all time. It's an allegory about a guy who has a terrible job, and how he overcomes challenges to achieve his dreams.
