Village Journals
Resonate your identity with Naseeb journals. Express your opinions, share your thoughts, post your writings and connect with like minded people through the power of expression.
Resonate your identity with Naseeb journals. Express your opinions, share your thoughts, post your writings and connect with like minded people through the power of expression.
The 7 Deadly Investment Sins
The Seven Deadly Sins - Investors beware, your vices will find you out
By Malcolm Stacey
April 17, 2005
As self-select ISAs and Self Invested Personal Pensions (SIPPs) are making shares investment more tax efficient, they are becoming more attractive to all sorts of private investors. But how do you avoid the pitfalls associated with the stock market? Here are some tips to avoid the seven most fatal investment errors.
~Greed~
Greed is the biggest enemy of the share shifter. And the most commonly committed sin. When a share you've bought has been rising fast, it's tempting to try to hold out right until the moment before it drops. This is a critical mistake.
Leave something for the next punter and don't expect to get out at the top. The share may well rise after you dump it. That is often because others hang on, or even worse, come in late.
If you can't take the whole profit, take half the gain, or take away your initial stake. Then you get a free ride. If the free ride is down you were still too greedy, but at least it won't cost you anything.
After a big jump, sell or watch carefully to see what happens. Don't expect it to go further; expect it not to.
~Gullibility~
Gullible share pickers are preyed on by dishonest traders called "rampers". These shady characters manipulate the market using a method known as "pumping and dumping".
A share in a poor company is bought by a ramper who announces they've bought it. Sometimes they find spurious reasons why this lemon will rise or just say they expect big things of it.
Actually, they are aiming to profit by raising the share price unnaturally high by manipulating other traders into buying. Then suddenly they sell. The followers of the ramper wonder why the price falls like a stone while they're left holding the turkey.
Never trust tips from just one person. Find positive information from at least two other sources before taking a tip.
~Loyalty~
Letting emotions affect your investment decisions is fatal. The slightest feelings of loyalty towards shares will cloud our judgment.
If you buy a share that does well in the first few weeks you naturally congratulate yourself and it is common to feel a bit fond of the share itself. Yet if the share begins to fall down the pan and you hold on because it was good for you once, you are letting your emotions dictate your decisions. This is a perfect example of mistaken loyalty.
Save loyalty for your family and friends. It is the third deadly sin of share shifting.
~Sloth~
Whether you're a day trader or you dabble once a month your investments will suffer if you're lazy. Sloth can stop you reacting appropriately. For example, if one of your favourite shares takes a turn for the worse and drops 10% and you do nothing. If you'd sold you'd have lost one pound in nine. Yet if you're lazy and the share drops further you stand to lose much more.
In this situation sloth is a mortal sin. You should study the form to discover if the drop in value was overdone. If the share is worth more than it now shows, you should buy more. This will give you a sporting chance of getting your money back.
If you are too lazy to do this research you will miss out on making your money back.
~Optimism~
Optimism makes investors unlikely to read the bad signs and look for reasons to keep a share they should sell.
Don't look for good reasons. If they don't slap you in the face, they're not worth much. Look for bad signs instead. It's safer.
Remember when you buy shares the price you pay is the price thousands of punters make them worth at that time. You have not bought them cheap or dear. That is the exact price.
It's the future that counts. If you make logical decisions you choose well. If a share rises, your sound decision is rewarded. If they fall, you still chose well, but the story changed. You're not a soothsayer and that's not your fault.
You are only guilty of the sin of optimism if you continue to take an optimistic view when everything around you says the share is going to fall.
~Remorse~
It is easy to feel regretful about an investment decision that goes wrong. It smarts. A little initial remorse is forgivable. Yet real remorse makes the investor feel worse as the days go on. This almost grief-like emotion will ruin your chances of success.
Push all failures out of your mind. The best investor makes errors. It helps to remember that a stupid mistake only seems stupid afterwards. At the time it was a wise choice. Look only to the future and yesterday's blunder will become today's lesson.
~Recklessness~
Recklessness is particularly tempting if you've had a poor week and feel desperate to bump up your weekly total. In the spirit of recklessness it's easy for a good £300 trade to become a £500 or £1,000 trade.
This ignores the reasons for initially wanting to trade £300. Whatever these reasons were, if you're a sensible investor, they were probably sound.
There are all sorts of other ways that recklessness can rear its head. Only take educated risks and if you leap in the dark don't be surprised when you fall.
By Malcolm Stacey
April 17, 2005
As self-select ISAs and Self Invested Personal Pensions (SIPPs) are making shares investment more tax efficient, they are becoming more attractive to all sorts of private investors. But how do you avoid the pitfalls associated with the stock market? Here are some tips to avoid the seven most fatal investment errors.
~Greed~
Greed is the biggest enemy of the share shifter. And the most commonly committed sin. When a share you've bought has been rising fast, it's tempting to try to hold out right until the moment before it drops. This is a critical mistake.
Leave something for the next punter and don't expect to get out at the top. The share may well rise after you dump it. That is often because others hang on, or even worse, come in late.
If you can't take the whole profit, take half the gain, or take away your initial stake. Then you get a free ride. If the free ride is down you were still too greedy, but at least it won't cost you anything.
After a big jump, sell or watch carefully to see what happens. Don't expect it to go further; expect it not to.
~Gullibility~
Gullible share pickers are preyed on by dishonest traders called "rampers". These shady characters manipulate the market using a method known as "pumping and dumping".
A share in a poor company is bought by a ramper who announces they've bought it. Sometimes they find spurious reasons why this lemon will rise or just say they expect big things of it.
Actually, they are aiming to profit by raising the share price unnaturally high by manipulating other traders into buying. Then suddenly they sell. The followers of the ramper wonder why the price falls like a stone while they're left holding the turkey.
Never trust tips from just one person. Find positive information from at least two other sources before taking a tip.
~Loyalty~
Letting emotions affect your investment decisions is fatal. The slightest feelings of loyalty towards shares will cloud our judgment.
If you buy a share that does well in the first few weeks you naturally congratulate yourself and it is common to feel a bit fond of the share itself. Yet if the share begins to fall down the pan and you hold on because it was good for you once, you are letting your emotions dictate your decisions. This is a perfect example of mistaken loyalty.
Save loyalty for your family and friends. It is the third deadly sin of share shifting.
~Sloth~
Whether you're a day trader or you dabble once a month your investments will suffer if you're lazy. Sloth can stop you reacting appropriately. For example, if one of your favourite shares takes a turn for the worse and drops 10% and you do nothing. If you'd sold you'd have lost one pound in nine. Yet if you're lazy and the share drops further you stand to lose much more.
In this situation sloth is a mortal sin. You should study the form to discover if the drop in value was overdone. If the share is worth more than it now shows, you should buy more. This will give you a sporting chance of getting your money back.
If you are too lazy to do this research you will miss out on making your money back.
~Optimism~
Optimism makes investors unlikely to read the bad signs and look for reasons to keep a share they should sell.
Don't look for good reasons. If they don't slap you in the face, they're not worth much. Look for bad signs instead. It's safer.
Remember when you buy shares the price you pay is the price thousands of punters make them worth at that time. You have not bought them cheap or dear. That is the exact price.
It's the future that counts. If you make logical decisions you choose well. If a share rises, your sound decision is rewarded. If they fall, you still chose well, but the story changed. You're not a soothsayer and that's not your fault.
You are only guilty of the sin of optimism if you continue to take an optimistic view when everything around you says the share is going to fall.
~Remorse~
It is easy to feel regretful about an investment decision that goes wrong. It smarts. A little initial remorse is forgivable. Yet real remorse makes the investor feel worse as the days go on. This almost grief-like emotion will ruin your chances of success.
Push all failures out of your mind. The best investor makes errors. It helps to remember that a stupid mistake only seems stupid afterwards. At the time it was a wise choice. Look only to the future and yesterday's blunder will become today's lesson.
~Recklessness~
Recklessness is particularly tempting if you've had a poor week and feel desperate to bump up your weekly total. In the spirit of recklessness it's easy for a good £300 trade to become a £500 or £1,000 trade.
This ignores the reasons for initially wanting to trade £300. Whatever these reasons were, if you're a sensible investor, they were probably sound.
There are all sorts of other ways that recklessness can rear its head. Only take educated risks and if you leap in the dark don't be surprised when you fall.