Warren Buffets first ruleof investing is to never lose money. His second rule? Never forget the first. Unfortunately, a lot of investors arent very good at following his lead. Here arejust a selection of ways you can lose money over the next year.
Fail to research companies
Buying a fast-moving share can often result in disaster if you have no idea why ithas gone up and more importantly what will need to happen for ittokeep rising. Buying blind is akin to gambling.
As well as taking an appropriate amount of time to understand a company, its also important to stay balanced when evaluating itsprospects. No businessis perfect. Those who close their ears to dissenting views run the risk of becoming too attached to their shares.
Trade, dont invest
As anyone with a passing interest in investmentwill know, stock market movements over the short term are very unpredictable. Sure, we can all take a stabat where the FTSE 100 index or Company Xs share price will be next month, but the simple fact is that no one knows with absolute certainty. This wont stop some from attempting to gain quick profits from trading, of course. If you can do this consistently, then I tip my hat to you. Most people cant.
At the Fool, were big fans ofbuilding wealth slowly.Although investing horizons will vary from person to person,we think its best to judge stocks and overall performance overyears rather than minutes. If you want excitement, stay away from the market.
Obsess over your portfolio
How often do you look at your portfolio? Once a month? Once a day? Every 10 minutes? While checking your investments every so often is prudent, fixating on every 1% rise or fall is bothunnecessary andmakes it less likely that youll stick with great companies.
So long as you rigorously researched your investments before buying them and your holdings are sufficiently diversified, there should be no need to watch their progress every hour. Switch off and move on.
Fail to consider ISAs
One of the best decisions you can take in investing canbe madebefore purchasinga single share.By opening a stocks and shares ISA (as opposed to a regular account), you canensure that any profits you makewill be shielded from capital gains tax. Given the wonders of compounding, this can save you thousands evenmillions of pounds over several decades of investing, especially as the ISA allowance will rise to 20,000 from April.
Responding impulsively to macroeconomic shocks or political surprisesisnt recommended. For evidence of this,think back to how markets reactedto last years referendum vote and Donald Trumps still-somewhat-unbelievable election win. Within hours of the UK deciding to leave the EU, stocks tanked. Those who sold their shares out of fear that we wereon the highwayto economic armageddon missed out on the massive rally that followed, particularly in many FTSE 100 stocks that benefitted from the fall in sterling. Similarly, those who dumped stocks in November as we struggled tocomprehendTrumps victory willhave missed out on the markets rising ever since.
Successful investing doesnt meanbecoming robotic but it can mean staying away from your portfolio until the outlook becomes clearer.
Learning the identity ofyour greatestadversary is one of biggest challenges in investing. It’s not other private investors, day traders or the big institutions. Rather, it’s likely to be the very person staring back at you in the mirror.
If you’re keen to avoid expensive errorsin your investing career, I strongly suggest you read aspecial report from the Motley Fool.The Worst Mistakes Investors Makecontains some excellent hints and tips on how youcan avoid making the most common blunders.
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