In a perfect world investment mistakes will be few and far between but we don’t live in a perfect world. As we have mentioned on numerous occasions, in many ways you learn your greatest lessons from your mistakes many of which you will never repeat again. There are a number of factors to consider when making an “investment mistake” some of which can be extremely costly to your wealth.
Drop the ego, we all make investment mistakes
Bulletin boards are full of investors who have an ego the size of a planet and refuse to listen to anyone with a counter argument. In many ways this type of investor is setting themselves up for a fall because at the end of the day they will make mistakes and sometimes it may take a third party to point this out. The investment world is littered with people who hold onto the last minute because they “know” the true value of the shares. These are the people who see their fortunes wind down to next to nothing and kick themselves.
Would you buy this share today?
If you are honest with yourself, sit back and look at your portfolio and take into account the fundamentals, the markets and even graph trends, would you still be a buyer of the shares in your portfolio?
It is not easy to criticise yourself, to backtrack on your decisions and to admit you made a mistake but this simple “would you buy this today” exercise could save you a significant amount of money in the long term. Obviously this only works if you are honest, but there is no harm in revisiting your previous investment decisions because it is highly likely the majority will remain valid but those that don’t, well, should you jettison them?
Stand-up, dust yourself down and get on with the
There is no point in crying over spilt milk or beating yourself up about a bad decision because very often this can lead to yet more bad decisions. Stand up, dust yourself off, learn the lesson and get on with it!
This may sound basic, may sound very harsh but you can’t affect what happened in the past but you can affect what happens in the future. Investors that live in the past, focus on previous mistakes sometimes cannot see what is in front of them and are likely to be the long-term losers. Once you let emotion sink into your way of thinking, your investment criteria and your long-term aims, this is when the danger creeps in and the risk factor can go through the roof.
Investors have short memories
In some ways investors having a short memory can be detrimental because some investors will never learn their lessons. However, those who learn their lessons and move on, and avoid living in the past, can use this short-term memory capacity to their advantage. They have managed to box off problems in the past, forgot about losses and instead readjusted, re-evaluated and they are ready to go again. Learn from your mistakes, take emotion out of your investment decisions and if at any time you realise you might be wrong then take the appropriate action.
Sometimes it is easier to write/read this kind of advice than it is to action it but learn from your investment mistakes and you will go far!