Beginners Investing mistakes to avoid when you start buying shares

Aug 31, 2022 | Investing Psychology

10 investment mistakes to avoid

1. Lack of patience

Thinking very much in the short term and not allowing investments to run their course if nothing has changed from the initial investment criteria. Investing is short term boring long-term exciting which doesn’t fit in with the way our brains are naturally built we seek excitement straight away which is why with investing it is much more psychological than necessarily having the wealth or disposable income to invest.

2. Lack of research

It amazes me that people will gladly buy bitcoin because their friend at work said it’s a good investment but they will spend many hours online researching what television to buy, happily travelling to stores to look at the picture quality, take advice and get reviews before making the purchase.

With investments do not be lazy, often they cost in excess of a television and are a higher risk proposition than your new flatscreen TV. Please dedicate time and research before you invest. If you don’t understand then learn from someone who does this will save you a fortune in the long term and likely increase your returns

3. Inability to take losses

It’s a proven fact that people get twice as much pain from losses as they do pleasure from a gain this is again a psychological aspect that you must break down. In my investing career I can honestly say that I get much more pleasure from the stocks that I have taken losses on before they became huge losses versus the gains I have made in shares that were immediately in profit.

If you know you can trust yourself to act and have that level of discipline to cut losing investments then you won’t get into a situation where you become fixated on anchoring bias which is waiting for the share price to return to your buy in price. This may never happen.

In investing you must accept that even the greatest investors are wrong more than they are right. You have to accept that you cannot be right all the time admit you made a mistake and move on.

4. Never average down

Do no throw good money after bad!

This is a common argument where people often cite Warren Buffet who regularly averages down on shares and once had 40% of his entire portfolio in Visa in his early days

My argument would always be “you are not Warren Buffet!!”….. and he has plenty scope for being wrong with billions of pounds.

If you play football and get a free kick 40 yards from goal you should chip it into the box for a teammate, if you are Cristiano Ronaldo then by all means take the shot. If you are 250 yards from the pin with a water hazard to carry, by all means pick a club if you are Tiger Woods, for the rest of us find another way to the hole quick!

5. Do not listen to tipsters

Share tipsters seem to be appearing everywhere whether it’s in newspapers or on bulletin boards which have become popular online .

By all means start researching companies you may hear about in the press but don’t buy tips remember you are not the only one getting the tip.

If a Sunday newspaper tips a share, it provides a great selling opportunity for short-term traders and you are buying a tip from a journalist who is paid to write tips. I’m not saying that the journalist is not well educated in shares or funds but they have to write something every week even if there is no tip they wish to give. Be vigilant it’s your money you’ve worked hard to earn it.

6. Not understanding risk

Each person has a unique attitude to risk which should be well explored by you and anyone who talks to you about your finances.

In my experience too many people pigeon hole risk as I’m low risk or I’m medium risk…usually when given options people pick the middle one which is why so many people perceive themselves as balanced. I’ve spoken to many couples where one leads the other on their risk and it’s ascertaining your own unique risk that is important.

What is also important to understand is that your attitude to risk can be very different for a pension compared to your investments for example. Building in your attitude to risk and your risk tolerance is key when making investment decisions.

You can find attitude to risk calculators online please use them don’t let advisers’ pigeon hole you into investing the way they want it’s your future not theirs. Often advisers talk to clients only in terms of financial crashes and it pushes the client down the  more cautious route when doing a risk questionnaire, the opposite applies if an adviser is too bullish on the long term. Understand your risk or find someone who can help guide you through this process.

7. Paying too much in fees and commissions

Have you sat down and worked out how much investments are costing on an annual basis in terms of platform charges, investment fund charges etc?

Please find this number out it may shock you and it can highlight overtrading which is a symptom of many new investors eager to chase the next big thing without staying patient and giving companies time to produce their profits.

8. Fear of missing out (FOMO)

You must never allow yourself to get caught up in herd mentality as it clouds your judgement and your discipline.

Investing is like golf, to be very good at it you need consistent practice and discipline however that will never stop the fact that an amateur with no skill or ability can get a hole in one something you may never achieve in a lifetime playing.

It’s the same in investing someone with no idea what they are doing can get rich by taking huge risk or getting incredibly lucky. You have to accept this will happen and you also must accept that the way to consistent returns is not to attempt to copy their swing but stick to the swings of the very best in the world proven over time.

9. Not running your profits

There are a shortage of really good companies in the UK stock market yes there are thousands listed but 95% of them are toxic waste so if you find a good company performing well and improving corporate culture and profits in an industry with a growth trend then sit on your hands…….. sometimes it truly pays to do nothing.

10. If you don’t put in the necessary effort, you won’t get the consistent rewards

In the same way that if you don’t train for a marathon, it’s highly unlikely that you will be able to run it.

Remember like I said before, where you get a population of anything then you get outliers. Warren Buffet famously said if we get the whole world to flip a coin and only the players throwing heads stay in the game by the time we do that 20 times we have multi-millionaires writing books on how they make millions each day flipping a coin and how they manage to throw a heads each time.

This is simply down to chance when you have such a large population doing anything in the same way that only one person from tens of millions of entries can pick the lottery numbers.

Michael Jordan when asked why he had scored the most baskets in the NBA said yes I have but I also have the most misses…you need to take that shot.

Contact me to avoid investing mistakes and discuss your financial future

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