To succeed in investing, it’s essential to have the knowledge and to exercise prudence. Investing is something that cannot be done out of a whim. You will need to learn a lot and to gain experience. There are also things that should be avoided.
The following are some of the most important things that should be avoided as an investor:
An investor is different from a speculator or a trader at the Philippine Stock Exchange or Wall Street. Sound investing for a typical investor generally means deriving gains through the appreciation of the share price, dividends, or the repurchase of the shares held. That’s why it’s more important to focus on investing in valuable businesses. Investors buy stocks or put capital into various businesses with a long-term mindset. Of course, these stocks or capital shares are to be sold when there are compelling reasons but not to derive gains from minimal share price appreciation, as speculators do.
Monitoring the Market Minute by Minute
The information coming from financial media like ANC’s business programs and the many business articles online and offline are considered as noise by many investment advisors. It’s usually not productive paying so much attention to them. Information from short-term trendsis usually not that useful and may even lead to decisions with undesirable consequences.
Focusing on One Investment or Thinking that Lump Sum Investment Is the Only Way to Go
Diversifying is one of the most common investment tips shared by highly successful investors, and it completely makes sense. Investing can be a highly risky venture. Why will you put all of your eggs in one basket? The likelihood that one specific investment will become successful through and through is close to impossible. On the other hand it’s also important to remember that investing in one company (the shares of stocks) can be done “in installments” and not lump sum. This is particularly advisable in cases when you are not sure when to buy, when you are expecting prices to become favorable soon.
Getting Fixated on Short-term Gains and Acting Impulsively
Success in investing is generally gauged with a long-term perspective. Investments are evaluated for their long-term potentials. It’s important to carefully evaluate investments that offer tempting short-term returns before deciding to get them. Impulsiveness has no place in investing.
Excessively Relying on Managers
There’s nothing wrong with extending trust and confidence to investment managers or even in equity mutual funds. However, since most managers tend to underperform their benchmarks, it’s better to adopt a more cautious attitude. Also, bear in mind that it’s rare to find managers that can profitably time the market. Take their advice, but don’t put too much confidence, especially once you already know the business of investing.
Going after Performance, Not Rebalancing
Rebalancing refers to the process of bringing back an investment portfolio to its target asset allocation as set in an investment plan. Many investors find it difficult to rebalance, since it means having to dispose well-performing assets and getting badly-performing assets. However, portfolios that have not been rebalanced tend to perform poorly, particularly those that have been allowed to sway with the market.
Most of the items listed above can be easily affirmed by experienced investors, especially those who have already seen long-term gain from their efforts.
This post is brought to you by:
MoneyMax.ph is the Philippines’ leading financial comparison site where you can save money by comparing financial and car insurance products and services – fast, comprehensive, and free. We aim to give the power of smart purchase decisions back to Filipino consumers by providing everything they need to become financially savvy. Like us on Facebook to get the latest tips on how to save.