Top 5 Investment Mistakes and How to Avoid Them
Ultimately, the whole point of investing is to generate a financial return while also protecting against risk elsewhere in your portfolio. If you are committed to avoiding unnecessary risk, you should also be highly motivated to avoid making mistakes along the way. Here are five potential pitfalls and what you can do to avoid them.
1) “Sunk Cost” Syndrome
When it comes to investing, you cannot become emotionally attached, no matter how much a particular stock, bond or company matters to you. If the investment isn’t performing, it doesn’t matter how much you want it to succeed. Either it performs or it doesn’t, and if it doesn’t, it’s time to sell.
2) Fighting the Market
No matter how wealthy you are, even a Houston business litigation attorney will tell you if you fight the market, you will get crushed. Occasionally the markets will clearly tell you something about your current positions. If you are heavily invested in index or hedge funds, that message will be all the easier to hear. When you hear it, listen, even if the message doesn’t make sense. The market can stay irrational a lot longer than you can stay solvent. Remember: your arms are too short to box with the market.
3) Tinkering
Invest, or do not invest. Don’t try to “tinker” with an existing position by shaving shares or trying to be clever. Constantly adjusting an investment can end up eating all your potential profits before you even get a chance to collect them. Plant your seed and be patient.
4) Pursuing the Wrong Objective
Your investing objective should be correlated to your risk profile. If your goal is moderate growth and sustainable income, don’t go investing in an activist hedge fund (even if you have the liquidity to sustain a loss). Simple as that.
5) Short Horizon
Have a decent time horizon: don’t invest as if you are looking for “immediate” returns—they don’t exist. This can cause you to make bad decisions distorted by illusory constraints. Remember the old maxim: “Nine women, one month, no babies.”
Investments will take the time they take to earn you the profits you seek.
It’s very easy to imagine being a good investor means you earn outsize profits and never make a mistake. The truth is even hedge fund managers occasionally make the wrong choice and then intensify their mistakes by trying to fix it themselves.
If you feel you have been unfairly treated, or if you are looking for advice on a major investment, consulting a qualified and experienced Houston business litigation attorney from Sigmon Law PLLC is often the right choice.