1 - Lack of strategy. Believe it or not most amateur investors don’t employ a strategy to their investing. Most people just simply buy investments and just hope they grow in value, with no real understanding of what they bought and why they bought it. Sometimes it works, sometimes it doesn’t, but it’s a big risk to take.
Find a strategy that works for you and don’t deviate from it.
2 - Selling your investments. All too often people are buying and selling investments on a regular basis. If something is worth buying, it’s worth keeping hold of. On May28, 2004, shares in Apple were valued at US$2, today they are worth just under US$500. How many people do you think have sold Apple shares during this period… I would hazard a guess at millions.
Research your investments thoroughly and have faith in your decisions.
3 - Timing the markets. Sitting and waiting for the markets to drop and then waiting for the highs to sell out is a very risky strategy. Investments go up and down all of the time and contrary to what many people believe, this is exactly what you want them to do.
Good investments always go up over the long term and the quicker you get in the better..
4 - Holding on to bad investments. If it’s not working for you then get rid of it. Just because it’s gone down doesn’t mean it’s going to go back up. Bad investments are bad investments, period! I’m a firm believer of having faith in your investment decisions, but we all make mistakes from time to time and it’s better to realise quicker before we waste too much time sitting on the infamous dead cat.
Dead cats do bounce, but just not very high.
5 - Working with the wrong people. If your advisor is recommending investments that aren’t growing then you need to find someone new. You need a benchmark to check your investments against and my advice is to use the S&P 500. If the S&P 500 grows by 5% then your investments need to be making you more than that. Your advisor won’t always be able to make you money as the markets go up and down, but the bare minimum they need to achieve is to beat the index.
Work with people that make you money and give you good advice.
William Frisby of Hampton Bridge, is a British expat who has been advising clients in the Far East for the past 10 years. To contact him write to firstname.lastname@example.org