Most investment mistakes are caused by basic misunderstandings
of the securities markets and by invalid performance expectations.
The securities markets move in totally unpredictable cyclical
patterns of varying duration and amplitude. Evaluating
the performance of the two major classes of investment
securities needs to be done separately because they are
owned for differing purposes. Stock market equity investments
are expected to produce realized capital gains; income-producing
investments are expected to generate cash flow.
Losing money on an investment may not be the result of
an investment mistake, and not all mistakes result in
monetary losses. But errors occur most frequently when
judgment is unduly influenced by emotions such as fear
and greed, hindsightful observations, and short-term market
value comparisons with unrelated numbers. Your own misconceptions
about how securities react to varying economic, political,
and hysterical circumstances are your most vicious enemy.
Master in these Ten Risk-Minimizers
Tips to improve your long-term investment performance:
1. Develop an investment plan.
2. Learn to distinguish between asset allocation and diversification
3. Be patient with your investment plan.
4. Never fall in love with a security, particularly when
the company was once your employer.
5. Prevent "analysis paralysis" from short-circuiting
your decision-making powers.
6. Burn, delete, toss out the window any short cuts or
gimmicks that are supposed to provide instant stock picking
success with minimum effort.
7. Attend a workshop on interest rate expectation (IRE)
sensitive securities and learn how to deal appropriately
with changes in their market value in either direction.
8. Ignore Mother Nature's evil twin daughters, speculation
9. Step away from calendar year, market value thinking.
10. Avoid the cheap, the easy, the confusing, the most
popular, the future knowing, and the one-size-fits-all.