Saturday , 18 August 2018


10 Investment Mistakes Even Skilled Investors Make

Many mistakes and pitfalls cause investors, both rookies and experts, to lose money in the markets. By fully understanding and genuinely acknowledging these mistakes, you are a step further to achieving consistent gains from your investment portfolio. [Here are 10 such mistakes that come to mind.]

The original article by Kevin Monk has been edited here for length (…) and clarity ([ ]) by munKNEE.com to provide a fast & easy read.

Mistake #1: Only Planning for the Short Term

The most successful investors have the ability to see beyond the first few days or weeks and look into how a particular stock or market will behave in the next year or two. This allows them to plant themselves firmly in assets that will accrue in both capital gains and dividend yield over the long run.

To gain a big picture view of a stock or market you’re interested in, pull up a daily price chart and observe the current pattern that’s unfolding.

Mistake #2: Keep Losing Positions Running

…When people buy a stock and it closes an X number of percentage points against them, a common reaction is to wait for the stock to bounce back. Unfortunately, being hopeful and having faith in that losing position almost always never works out in the investing realm.

Avoid this mistake by setting profit targets and, more importantly, stop losses before entering a position to protect your account from sharp price declines.

Mistake #3: Being Trigger Happy

Impatience and fear of missing out…are what leads investors to get in on a position without any or sufficient reasoning. It’s what forces investors, especially inexperienced ones, to abandon their technical analysis and strategies prematurely and, while it may lead to one or two winning positions, over time, it can expose your investment portfolio to high risks.

Mistake #4: Emphasizing Too Greatly on Past Returns

When choosing your next investment, don’t just rely solely on past market patterns and information. Just because you bought a tech stock in the past that produced a return, it doesn’t mean buying one now or buying the same tech stock today can yield the same result. The same goes when choosing mutual funds to invest in.

While historical data helps put some degree of reasoning and logic to current market action, it isn’t completely indicative of what the future holds.

Mistake #5: Starting with Too Small of an Account

You’ll find a lot of ads today saying how you can invest with just $50 in your account and, while it’s technically true that you can invest with that measly amount of money, it’s ill-advised and, frankly, wasteful. Roundtrip stock trades cost around $5 to $15, which leaves you just a few dollars to actually buy the stock you want.

Save for a decently sized account or launch a campaign on a cloud sourcing platform to get the cash you need to start investing.

Mistake #6: Acting on Water Cooler Recommendations

Just because a fellow investor…tells you that company XYZ is a good buy right now, that doesn’t mean you should go right ahead and buy a couple dozen stocks based on that advice, at least not until you’ve actually done some research yourself. Nowadays, this is becoming an increasingly prevalent mistake thanks to the expanding reach and impact of social media content.

Although investing content and advice you read online and hear outside are good ways to gain different angles on potential investment opportunities, always back your positions up with your own set of data points and research.

Mistake #7: Overlooking the Power of Dividends

While S&P 500’s stock dividend yield rose only by a mere five percent in the past year, dividend stocks remain a powerful generator of steady income from your investment portfolio. Unfortunately, many investors overlook the financial gains to be made from picking the right dividend-yielding stocks. They would much rather pick the “hottest” tech startups or the cheapest penny stocks that could jump hundreds of percentage points in a day. A co-manager at BlackRock Equity Dividend Fund, Tony DeSpirito, says that the concept of receiving dividends from stocks remain intact.

Mistake #8: Plateauing as an Investor

Stagnating as an investor is different from maintaining a set of core principles that guide your investing decisions. Stagnating is failure to realize the advantages of using more advanced tools or failure to adapt to changing markets because you simply don’t know that such changes are occurring.

Invest in your financial education and know that reading books and attending investing seminars (and courses) can greatly impact your bottom-line as an investor.

Mistake #9: Overcomplicating Things

It’s a common mistake for rookies, but is something that skilled investors also find difficulty controlling. For many humans, making something more sophisticated increases its integrity and credibility. This is something that you should avoid when investing. Using too many parameters and indicators and overcomplicating the fundamentals of investing only lead to unnecessary stress and frustration over time.

Stick to common sense and rational thinking and you’ll do better than 90 percent of stock investors who either break even or lose money throughout their careers.

Mistake #10: Averaging Down

Averaging down means buying more stock and adding more to your currently losing position at a lower price. In some ways, this makes practical sense since it allows you to get in at a better price point.

Nevertheless, before buying more of a losing stock, one must first submit it to a sanity check and see if the underlying reasons for buying it in the first place are still intact.

Scroll to very bottom of page & add your comments on this article. We want to share what you have to say!

Related Articles From the munKNEE Vault:

1. Dogs of the Dow: A Simple Strategy Using the Dividend Yield

Investing in the Dogs of the Dow, which refers to the 10 highest-yielding stocks in the Dow Jones Industrial Average at the end of the year, is a very simple strategy you can use in 2018 to beat the market. Here’s everything you need to know.

2. When To Choose Growth vs. Income Stocks For Your Portfolio

By being lured to growth stocks with high short-term returns, investors sometimes lose sight of their main investment goals. Re-orient your investment portfolio by assessing your investing goals and then choosing the appropriate growth vs. income investments.

3. Apply the 80-20 Rule For the Highest Investment Returns – Here’s How

When it comes to investing, we all want to earn the highest return possible. There are many strategies out there to help with this endeavor but I’ve found the best route for the highest returns is to simply follow the 80-20 rule. The 80-20 rule has nothing to do with your overall allocation. It goes much deeper than that so let’s get started so you can start achieving the highest returns possible.

4. These 5 Moves Prove You’re Finally Investing Like A Grown-up & Not Like A Kid

How do you know when you’re investing like a grown-up and not like a kid? This article presents the 5 investment moves that prove you’re finally a grown-up.

5. 7 Things to Consider Before Buying Dividend Stocks

The basic principle behind dividend paying stocks is that they pay YOU to own THEM but do they outperform non-dividend paying stocks over time and what should you consider when buying a dividend stock?

6. Is Short Selling Stocks Worth It?

The practice of short selling – or betting against a specific stock or security – has all kinds of intrinsic risks and costs that need to be understood before it should be used as a tactic. Not grasping these risks can lead to all kinds of horror stories. Today’s infographic addresses the question of whether the risk of short selling is worth the potential payoff.

7. 6 Things You Need to Know About Buying on Margin

Buying on margin can mean potentially higher returns – but it can also lead to large losses very fast. This article outlines 6 things to know about buying on margin and 3 key risks of doing so.

8. A Look At “Safe” Investments: Just How Safe Are They?

Is there such a thing as a truly “safe” investment? The short answer is that no investment is 100% safe, but there are certainly some investments that are better than others at protecting your hard-earned savings. Let’s examine some of the most common “safe” investments and learn how good they actually are at shielding you from financial losses.

9. Recognize These 6 Emotions Before You Buy or Sell an Investment

Since there is such a wide range of emotions, it might be helpful for you to do a ‘gut-check’ before you actually buy or sell any type of security. Knowing how you “feel” about investing might turn out to be just as important as knowing what you “know.”

10. Time the Market Using Momentum Indicators

Never again will you have to rely totally on the ‘advise’ of your broker. With what happened last year to most portfolios it is imperative to do ones own analysis and be in a position to become better informed. If ever there was a “cut and save” investment advisory this article is it.

For all the latest – and best – financial articles sign up (in the top right corner) for your free bi-weekly Market Intelligence Report newsletter (see sample here) or visit our Facebook page.