Mistakes are inevitable. They’re part of life and they’re a sign we’re trying. If we never failed and made mistakes that’s a sure sign we aren’t trying hard enough. If at all. The more you reach for the more hurdles you’ll encounter and the sooner you’ll fail.
But I believe this to be a good thing. It pushes us outside of our comfort zones and leads to experimentation which if what results in those brilliant breakthroughs. Without all of that uncomfortableness we won’t really achieve much. And that’d be a real waste.
So, it’s unsurprising then that when it comes to investing making mistakes are 100% part of the deal. (Psst: Read here about the hidden price you’ve gotta pay to get the rewards from investing). But wouldn’t you rather learn from others’ mistakes rather than waiting until you make those very same blunders of your own?
Investing isn’t a practice game. It’s an emotions’ one.
When it comes to literally (almost) everything else in life the more you do the better you’ll become. This is down to the failure thing (the more we fail the more we learn) which means we get to master a particular skill. But investing flips this on its head. Because the less we do the better we’ll become. And the better we become the better our returns become. Because that’s our end goal, right? But this goes against everything we know and believe about the world that we don’t quite believe it.
If you wanna be a great investor, do less – and learn from others’ mistakes. That’s true wisdom. And humility. Plus, it’ll save you so much lost returns and lost time. Returns you can potentially get back. But time, no way. Once it’s gone it’s gone.
So whether you’ve just started out on your investment journey (hooray!) or you’re already on the road (yippee!) these are 3 common areas people slip up on that can be so costly. Avoid them and you’re half way there!
#1 Thinking (and acting) short-term
News outlets are basically floods of information. They bombard us with an overload of short-term stuff. What I call ‘noise’. But this is not the kind we should care about. At all. We’re investing for the long-term. Our horizon is not one day (like the media). It’s over a decade. More like a handful.
So why on earth should we waste our precious time worrying/fretting/stressing about short-term events that spur on volatility aka the share price drops we all hate and fear. But so many think this stuff is relevant to them. They’re playing the long game but they fall into this great big trap of following the rules to another game. There’s no way they can win like that.
Noise – and acting on it – it what causes investors to sell. And the worst possible times. When markets have already crashed by the way (like in March 2020) because when news enters the feed it gets priced into the stock market within a fraction of a second. By those ultra-fast machines. There’s no way of timing that.
If you’re in this for the long-run, remember that next time you read/hear something in the news that scares you off a little more than you’d like. Because I promise you in 5 years time there’ll be plenty of other stuff the news is talking about and none of this is gonna matter anymore. Let’s hope!
By investing regularly, you can stop yourself from trading on noise. By topping up your investment accounts on a regular basis, you won’t be investing at the top (or bottom) of the market. This is what happens when you invest lump sums here and there. You could be buying at pretty nasty times.
By being a consistent investor you’ll end up with an average of share prices. And this helps avoid falling into the trap of buying/selling at the worst possible time. Something I do when markets take a tumble is not to look at my portfolio. I simply don’t open it. I found this stopped me from getting stressed and doing silly things I would probably regret later on! (Though read here why our worst money moves make for the very best lessons).
#2 Acting On Emotion
This one kinda ties into #1. Reading about scary stuff in the news that’s bound to negatively affect the stock market (cough, cough that gigantic balloon that’s been shot down) can make you feel all sorts of things. You may feel scared that you hold stocks that could very well go down at any minute.
They’re like ticking time bombs. At least that’s how they feel. You may feel anxious. Like you’ve gotta do something. And what do people do? They change their strategy in spit seconds. Boom.
They go from being a patient, rational investor to a worried, short-term trader. They might choose to sell their holdings that could be the ones most affected by the news or they might choose to sell the whole bang lot, reassuring themselves that they’ll buy again later. Meanwhile (thanks to Mr Murphy), markets keep on going up. So you get even more stressed. And you buy stocks. Then, news turns again. For the worse. And you sell. You get the picture.
You’ve gotta be able to take the good with the bad
Investing will have its ups and downs. If you can’t handle the bad, you might not be around for the good. Control your emotions not the other way round. It’s easier said than done I know but do whatever it takes to not get too attached to your investments. I find this bit hard but I know that the more I detach myself from my investment account, the less I’ll fiddle with it. And the less I fiddle with it the better my outcome will be! Read here how you can unlock the power of investing.
I used to check my portfolio daily. I just loved seeing my (teeny tiny) investments grow. Like little seedlings. But when they tumbled I would often think I need to do something. So now I just let them do their thing. Limiting myself to the occasional check-in once a week. Ha! Kidding.
#3 Quitting Too Soon
This ties everything together. With a big red bow.
Compounding is why we’re investing. It’s why we’re holding on, doing what we can. To get that growth on top of growth. The growth squared that magically multiplies our money. It’s no wonder Albert Einstein called it the 8th wonder of the world.
But fellas, compounding takes ages. Ages and ages. Years upon years. It doesn’t happen overnight. Not even close. But when people look at their investments (when it’s rightfully been a while), they think something should’ve happened. They get oh so impatient. They might even sell their stuff and move on. OUCH.
Compounding is like watching grass grow. You can’t actually see it happening. No way. Because it’s that slow. But I promise you, the minute you walk away, that’s when it’ll start sprouting.
Investing is a patience game, really. Nothing more, nothing less.
Don’t let anyone tell you otherwise!
Disclaimer: This blog is not investment or financial advice. It is my opinion only. This blog is not a personal recommendation to buy/sell any security, or to adopt any such investment strategy. Always do your own research before you commit to any investment.