Common investment mistakes to watch out for
Very recently, Shane Oliver, head of Investment Strategy and Chief economist at AMP Capital, listed seven common mistakes investors have a habit of going into.
According to Oliver Shane investors very often commit investment mistakes because they rely on common sense factors that serve them well in everyday life. However, logic is different in the investment world making it harder for investors to reach financial goals.
The following are a list of the most common bad habits that investors should break according to Shane Oliver.
Following the herd
In a classic case of safety in numbers, individuals feel assured investing in assets that everybody else likes. However, this course of action is doomed to failure.
When everyone is bullish and has bought into an asset with general euphoria about it, there is no one left to buy in the face of more positive supporting news but lots of people who can sell if the news turns sour. The probability of losing money is much higher than that of making money.
Current returns will continue
An assumption often adopted by investors is that current returns and economic conditions are a guide for the future. As a result, regardless of whether times are good or bad, investors expect results to persist. In turn, this causes investors to get in and out of the markets at the wrong times. Investors should be aware of the economic and the investment cycle; the proverbial seven yours of plenty and seven years of famine.
Strong growth is good for stocks
While this rhetoric generally holds true in the long term, it can fail when the markets are at cyclical extremes, Oliver said, noting that share markets are forward looking. So when current economic data is strong it may be the wrong time to buy. Historically, the best gains in stocks were made when economic conditions were poor.
Trusting the experts
Experts get things right but they also get things wrong. The grander the forecast, the greater need for being careful. The value-added coming from experts should be in providing investors with a better understanding of issues rather than making predictions.
Letting strong views get in the way
There's a difference between being right and making money. There will be times when despite a correct event or economic forecast, markets move in the opposite direction. This happens because the world is a chaotic multi-factor model and is impossible to capture all the possibilities in any investment forecast.
Looking too much
Checking one's investments too many times can result in overexposure to market noise, which can cause investors to act in an irrational manner. The solution to this is to practise patience, which should allow investors to look beyond short term market movements.
Timing the market
Without a structured, professional asset allocation process, trying to sell at the peak and buy at the bottom is very difficult. Investors tend to hurt their own returns when they attempt to avoid the worst days in the markets as they either get out after the bad returns have occurred or get in too close to the peak.
Disclaimer: This article was issued by Antoine Briffa, Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt . The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.