Unfortunately, we don’t seem to learn enough from past mistakes and we continue to repeat investment errors which result in poor performance and disappointing results. Here are some smart pointers:
What is your investment strategy?
Do you have one? You’re not going to reach your investment goals unless you do. It’s that simple. To formulate a strategy, identify your time frames and the level of risk you are prepared to take. What are your long- and short-term goals? What does your risk tolerance profile look like? How much money would you be prepared to lose? If your answer is none, then you are extremely risk-averse.
You need to identify whether you prefer to invest directly in stocks, or in a unit trust where you leave it to the fund manager to make the decisions. Again this is directly related to your risk tolerance. A well diversified portfolio of stocks or unit trusts will offer a more efficient spread and a lower level of risk over a long period of time.
Avoid “me too” decisions.
Buying a stock because of current market hype is another mistake. Those stocks often fall the hardest. Instead of choosing according to the flavour of the month, why not properly research the stock that you would like to invest in, study the historical performance, its potential and its overall ranking over a longer period?
Take a long-term view on the stock and appreciate that regular trading has a negative impact on your investment returns because you incur costs and fees every time you trade. Set out for long-term investments with a buy-and-hold strategy instead of having an active trading approach.
Beware of rumours.
Don’t always believe local rumours and tips unless you have substantiated the information first. If you rush, your action will probably have a negative impact on your investments. Remember that by the time you receive a tip, it will already be old news.
Don’t forget to be realistic.
Markets rise and fall so you should not expect to invest on day one and make a profit the next. A successful investment strategy will help you ensure that your expectations are realistic in terms of your actual investment portfolio.
Too many investors tend to be emotional about certain shares, developing lingering positive (or negative) feelings about the shares based on past experience.
If you understand the volatility of markets falling and recovering in quick succession and also that markets can stay down for long periods of time, your strategy will be effective. Keep a cool head and remember that your investment strategy must dictate your actions.