Investing isn’t for the faint of heart. One needs to have a plan and stick to it; yet, it’s easier said than done. Falling victim to one of these mistakes is easy to do. Being aware of what they are will provide you with the right mindset to know if one of these thoughts is making some noise.
Emotional Investing
The 24/7 news cycle and social media have made it easier to be an emotional investor than ever before. Usually, once the news hits, the damage has been done. Great earnings exceeding expectations and the stock jumps 10%? You are now buying a stock that was 10% more expensive than an hour before. If this company wasn’t on your buy list before, it shouldn’t be now without much more research.
The same goes for bad news. Sometimes the bad news is already priced in. Sometimes the market completely overreacts to bad news. And sometimes the bad news does warrant you to sell. In good and bad situations, you need to sit back and do your research before you make any moves. In the long run, your portfolio will thank you.
Buying The Hype
Did you hear the latest and greatest iPhone app is going public? It’s a new app that lets you track all the feral cats in your neighborhood! You’ve heard in the news everyone is using it, but you haven’t spoken to an actual person who has the app. They somehow have 500,000 daily users; but, they have no revenue and they're lighting money on fire by building out an expensive staff for their “pivot” to being the central entertainment hub for every single person on the planet. Their models say if they can get 10 billion users (when the world’s population is short of 8 billion) then they can finally turn a profit. Wall Street and Silicon Valley are both excited about it and they’re valuing their company at $50 billion.
Sound familiar? Taking a step back and analyzing the fundamentals of a company can help you avoid getting caught up in the hype of what could be. If something sounds too good to be true, it probably is.
Inconsistent Investment Philosophy
There are a lot of different investing strategies out there. Too high a number to account for and they all have their strengths and weaknesses. The issue isn’t having the “right” or “best” strategy; the problem is not sticking to a strategy. Switching your investment philosophy in a short time from value to growth, and then growth to socially-responsible, then socially-responsible to hyper-focused, then hyper-focused to a barbell, and finally barbell back to value, etc. (you get the picture) is going to destroy your portfolio. With constant philosophy changes, you are betting on your ability to catch lightning in a bottle (and I’ll save you some time - you’re not going to be able to do it). Having a consistent approach will win in the long run. And the more boring your approach is, the more likely you’ll be better off.
Not Diversifying
It’s easy to get caught up in a company that has experienced rocket ship growth like Netflix, Amazon, or Apple in the 2000s and think “What if I had invested everything I had in that company 15 years ago? I’d be rich!”. Finding companies like this before they hit is like finding a needle in a haystack. Putting all your eggs in one company’s basket could work out for you; or more likely, you’ll be better off putting your eggs in a lot of baskets. By investing in companies that span many sizes, sectors, industries, and even countries, you help reduce risk in your portfolio when you are exposed to only one or a few.
Sitting On The Sidelines
The final mistake investors make every day is not investing at all. They’re waiting for the “right time” to go all-in by timing the market. Sure, there is a chance you can time the market once or twice in your life; yet, in the history of the world, there hasn’t been one person who has been able to do it consistently. What makes you think you will be the first? By waiting for the “right time”, what happens if the right time never comes? You could be missing out on your portfolio appreciating. As long as you are investing for the long term and not the short, short of something cataclysmic you’re going to be okay.
Final Thoughts
Having a thought out and consistent investment philosophy with a diversified portfolio is going to give you the greatest chance to win in the long run. There are going to be times the market goes down, but having the peace of mind that your portfolio is built to withstand these downturns will keep you ahead of the game when the market turns upward.
If it’s been a while since you’ve looked at your portfolio or you need help coming up with a solid strategy, I’m here to help with whatever your needs may be. Go ahead and schedule a complimentary initial consultation on my website or click the button below to begin.
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About The Author
Shaun Melby, CFP® provides fee-only financial planning and investment management services in Nashville, TN. Melby Wealth Management serves clients as a fiduciary and never earns a commission of any kind. Shaun has over 10 years of experience as a financial advisor in Nashville.