On a TV show, a young child is watching the news. The sharemarket profile came on, with it’s big dips and occasional highs, and the character remarked “It’s always going up and down. Why don’t we go back to olden times and just trade in chickens?”. Surprisingly wise words from a television character.
Yes, the sharemarket is always going up and down and our job, as investors, is to make some predictions on that movement and aim to capitalise on them. Anyone who tells you it’s easy is trying to sell you something. Whether you’re a dab hand or completely new to the game, Louise Bedford at Yahoo! Personal Finance wrote last week on some of the sins of investing, inspiring the list below.
If you think the shares are low or undervalued, then it’s a sensible idea to buy them. Provided you strongly believe that they are going to go up again. If shares are in a dive, then reconsider whether your inclination to buy them is drawn from a sense of the daredevil or a sense of yourself as a sensible investor.
Growth Vs Value Stock
Get rich quick has never really worked for me. I’m more of the slow and steady field of action. In investment, that probably means a bias towards value stocks (ones paying steady dividends) as opposed to stocks that will triple in value overnight. Overreaching,or greed, is a terrible attribute when it comes to investment. It can lead to overexposure and undermining our financial stability.
Economics is essentially emotional, but that doesn’t mean you should be emotional when it comes to investment. Taking our egos out of the picture will result in a far more rational and dispassionate approach to our investment. Bedford suggests a written trading plan is essential- an entry, exit and money management strategy. We might like to think we’re big shots, but we’re unlikely to stay so for long if we don’t get disciplined about the market.
Everyone- no matter who they are, how sleek their car, how straight their teeth- fights the same battles, day in, day out. Comparing ourselves to others is not only unproductive (allowing us to make poor decisions or ones that don’t match our actual situation) but also delusional, as most people have aspects of their lives their not sharing. Your brother-in-law made a killing on the stockmarket yesterday? What about the day before that? Or his debt exposure? Before we march off and try and compete, think about what really matters- our long-term financial security and meeting our financial goals.
Ignoring The Golden Rule
Keep your losses small and let your profits run. Not bad advice for all personal finance endeavours, to minimise the loss and maximise the gain. This means being rational about our investments. Always have a price point below your purchase price where you will sell. Never push your gains to the breaking point. If you can keep your finances tethered to a middle ground, without too much exposure in either direction, then your investments will thank you for it.