The 3 Mistakes Almost All Investors Make
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I have been investing in stocks for over 40 years. Along the way, I made a few big moves, and a lot of spectacularly stupid ones.
Here are three mistakes I’ve made in the past, along with countless other investors, that I’m now doing my best to avoid. Dodge them and you’ll be richer.
1. Don’t buy when stocks are on sale
Most investors love when stocks hit new highs and hate when they hit new lows.
I understand. Obviously, we like to feel richer when prices go up. But we actually obtain richer by buying when prices are low and selling when prices are high. So, just like you might expect a sell-off at the mall, I look forward to horrible stock markets, because that’s when stocks are selling.
Example: Take a look at my portfolio, and you’ll see that I bought a bunch of stocks in 2009, near market lows. At the time, no one – and I mean no one – was suggesting stocks. Stocks and housing sucked, and everyone was freaking out.
That’s when I bought a bunch of stocks and the house next door. Not because I’m a genius, but because I’ve missed opportunities like this over the years by standing like a deer in front of the headlights.
It’s as simple as that: buy quality businesses when times are scary. As long as you believe the economy will eventually rebound, you will eventually be rewarded. If you think everything is bad and the economy will never recover, buy a shotgun and canned food.
2. Not having patience
Buy a bush and plant it in your front yard. Watch it every few seconds and soon you’ll think you screwed up because you can’t see it growing. Then you might be tempted to rip it out and start over, or maybe even stop planting stuff altogether.
That’s not how you grow bushes… or money.
Success takes time. Make informed decisions, then be patient.
Earlier this year, the stock market was down, which didn’t surprise me, because it was horribly overvalued and inflation and interest rates were up: both bad for stocks. Then, in June, many investors suddenly became convinced that the Fed would soon switch from a rate hike to a rate cut and that the worst of the economic news was behind us.
For a moment it seemed like they were right. From mid-June to mid-August, the Dow rose 14%.
But in my experience, it takes time to get inflation under control and for stocks to recover. So rather than chasing the rally and buying, I patiently waited. In fact, I used the summer rally to lighten stocks.
My patience paid off. In early September, the realization set in that interest rates weren’t going to come down any time soon and the economy could be recession-bound. The shares have since fallen.
Like I said above, I’m fine with it. As stocks go down, I will increase my positions in companies I like, like Microsoft and Apple. Not yet, however. I’m not in a hurry.
3. Paying too much attention
Knowledge is power, and information creates knowledge. But too much information can be a bad thing if it makes you nervous.
To survive, CNBC and other news sources are required to “feed the beast” by breathlessly reporting every nuance and opinion.
You don’t attract viewers with a video showing growing bushes. To avoid dead air, CNBC must report every cloud, raindrop, puff of wind, new leaf and branch.
Blah, blah, endless blah, that’s how they make money, but that’s not how you make money.
Guessing what will happen in the next 10 days is a fool’s game. Forming an opinion about what will happen in the next 10 years, and then acting on it, is how wealth is created.
Use the information to create and confirm an investment thesis. Then sit down and stay put while your thesis still makes sense.
In 2001, I realized that Apple’s iPod was a consumer phenomenon, essentially creating a new paradigm. I put $1,700 into the stock. Over the next 20 years, there were myriad stories on CNBC and other sources suggesting it was time to call the register.
I ignored the noise.
Twenty years later, I finally sold Apples, after my investment had reached $800,000 and it had become too large a part of my portfolio.
At the end of the line ? Read, watch and observe until you are pretty sure you know what is going on. But not to the point of developing an itchy finger.
I founded Money Talks News in 1991. I’m a CPA and also licensed in stocks, commodities, major options, mutual funds, life insurance, supervisor securities and real estate.
If you choose to follow my advice, please note: I will tell you what I do, but I will never tell you what you should do. I can’t, because I don’t know you. I’ve been doing this for a long time, but I’m certainly not always right. Not by far. So do your own research, make your own decisions, and be responsible for your own money.
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