A donkey doesn’t hit the same stone twice! But if that donkey happens to be investing in the stock market, there is a good chance that it will! I have been working with retail investors for over 25 years so let me give you the following tips to avoid the most typical mistakes.
Make a realistic assessment of your own capacities. After all, the market is nothing but the opinion of all participants expressed in a price. What do you bring to the table? What is your advantage? After all, you work in the same market as Warren Buffett, Goldman Sachs and professional hedge funds. Be realistic in your confidence.
Trading with hindsight
Trading with hindsight is the easiest thing in the world. People remember the times when they were right. One way to check your knowledge is to make a prediction about the market or an individual share every day (every week, every month). Write this down and check it afterwards. This contributes to a more realistic view on things.
Relevance of news
Current affairs often lead to an overreaction on the stock exchange. Investors attach great value to (the latest) news. In theory, a fierce price movement would remain consistent if there were no other news about that fund. In reality however, this rarely happens. News is important but give it the right weight in your investment decision.
Fear of being left out
Investors often suffer from FOMO, Fear of Missing Out. The fear of missing out is caused by success stories of others and is mainly an emotional reaction. FOMO can lead to overheating, like the dotcom bubble. People decide to get in late. So late that at the same time a correction takes place, a price drop. These FOMO investors are therefore often left with a loss.
The information in this article should not be interpreted as individual investment advice. Although Academy for Investors compiles and maintains these pages from reliable sources, Academy for Investors cannot guarantee that the information is accurate, complete and up-to-date. Any information used from this article without prior verification or advice, is at your own risk. We advise that you only invest in products that fit your knowledge and experience and do not invest in financial instruments where you do not understand the risks.
Kaspar Huijsman is the director of Academy for Investors. A seasoned expert in investment, he offers seminars throughout Spain and Portugal and online.