Here are the 5 biggest mistakes most ordinary investors make. They are all obvious but mistakes you can avoid by applying some common sense. Avoiding these mistakes make you wealthier with time.
1. Being Swept away by exciting stories.
If the story sounds too good to be true, than it is most likely too good to be true. If so, stay clear!
2. Investing in businesses you don’t understand.
If you don’t understand the business you’re investing in, you’re investing blind.
3. Allowing yourself to be bullied by good salespeople.
Do not buckle under pressure from a sales man. Whenever someone tries hard to sell you something, take that hard selling to be a red flag: Stay clear!
4. Investing in trends too late
You have to invest at a good time, when prices are going up but the values are still low. E.g. when you can no longer buy properties at 8-10 times annual rents, the only way to profit is to ride the bubble to the top. But riding a bubble when the economics are bad is a fool’s game. Your only chance of winning is to find someone else more foolish than you who knows less about the market than you do and is willing to buy you out.
There’s a time to get into a trend and a time to get out. Neither is particularly difficult: Pay attention to the fundamental economics and ignore the excitement caused by a bubble.
5. Investing without a way to limit your losses.
Sometimes, even if you use your common sense and avoid the 4 mistakes above, you can lose money because something unpredictable happens. To avoid this, set a rule: Never get into an investment unless you have a way out. There is always a way to limit your downside as long as you identify what that is before you make the investment. Then stick to it.
Start now by analysing your current investments and ask yourself honestly, if you are making any of these 5 common mistakes. Then act on it!
Sven Franssen