It took a long time to evolve my strategy for stocks and shares. And I made many investor mistakes. There isn’t enough room here to list them all. But here are the three that probably hurt my returns the most.
1. Failing to allow investments time to grow
Behind every stock is a business. And it takes time for an enterprise to execute its growth plans.
Sometimes, the progress of a company’s share price can be slow. But beneath the surface, operational momentum may be building in the business.
I’ve observed that many successful growth stories have a long-term share price chart that looks like a learning curve. So there’s a long leading tail where the rise seems gentle. And in the past, I’ve sold the stocks of decent, growing businesses too soon — somewhere along that leading tail.
Perhaps I scored a 100% gain and felt pleased with myself. However, it’s possible for successful, growing businesses to grow for many years. And their stocks can enter a period of exponential growth where the price rockets much higher — just like a learning curve.
The effect can be caused by a growing pace of growth in earnings and a valuation rerating of the shares. When a company clicks with growth, the stock market tends to recognise such success and assigns the company a higher valuation. However, that doesn’t always happen.
Nevertheless, failing to allow investments time to grow and selling too soon is one of the worst investor mistakes I’ve made.
2. Getting too close to the markets
It’s wise for me to keep well informed about my investments. But sometimes that can lead to addiction! Checking my portfolio three times a day and watching shares jump up and down can lead to faulty decisions.
My goal is to hold shares while businesses fulfil their potential. And that means adopting a long-term mindset. So sometimes the best course of action is for me to turn off the screens and stop listening to the market news.
The current bear market is a good time for using this tactic. I know the businesses I’m holding are doing well. So it really shouldn’t matter to me if their share prices dip for a while. However, getting too close to the markets now could cause me to panic-sell.
I’ve been there and done that in the past. Never again!
3. Failing to manage a portfolio well
It’s easy for me to become either over-attached or under-attached to my stock positions. However, I need to manage my portfolio to achieve my investment objectives.
Sometimes, that means selling a stock if the underlying business is failing to perform in accordance with my expectations. And it certainly means selling if my investment thesis proves to be wrong. But I must balance that approach with holding on to stocks patiently while underlying operational progress unfolds in a business.
In other words, I need to water the flowers and trim the weeds in my portfolio. But, in the past, I’ve got that the wrong way around and ended up selling winners and adding to losers. That too was a big mistake.
The post The 3 worst investor mistakes appeared first on The Motley Fool UK.
6 shares that we think could be the biggest winners of the stock market crash
The hotshot analysts at The Motley Fool UK’s flagship share-tipping service Share Advisor have just unveiled what they think could be the six best buys for investors right now.
And while timing isn’t everything, the average return of their previous stock picks shows that it could pay to get in early on their best ideas – particularly in this current climate!
What’s more, all six ‘Best Buys Now’ are available to access right now, in just a few clicks.
Learn more
setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#FFFFFF”, ‘color’, ‘#FFFFFF’);
})()
More reading
If I’d invested £5,000 in Ferrari shares in 2015, here’s how much I’d have now
1 penny stock I’d buy as stock markets continue to dip
Does the Lloyds share price falling below 40p make it a no-brainer buy?
Here’s the BHP dividend forecast for 2022 to 2024
FTSE 100 stocks in focus: Tesco and Imperial Brands
Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.