- Lack of a strategy
When making an investment write down the reasons why you are placing your hard earned cash in the hands of CEOs that you have never met. It is important to be clear why you are entering an investment, when you plan to exit the investment and any factors that may cause you to rethink your initial strategy.
- Not cutting Loses
Crystallising a loss is notoriously difficult for inexperienced and unseasoned investors. There are graveyards full of investors that were unable to manage the downside risk of their portfolios and racked up heavy losses as a result. The hope that a share price will rebound is all too much for many investors as they watch a bad position become increasingly worse. Having a system in place to stop losers in their track is imperative.
- Not cutting Loses
- Relying on Bulletin Boards and Forums
Although there are some well informed individuals frequenting some of the popular bulletin boards available to UK investors there are also many less well informed and less experienced individuals. These people may appear knowledgeable because of the amount of posts they have made or length of time they have been posting; first-hand and thorough research should not be substituted by reading these peoples bulletin board posts.
- Boredom Trading
As the name suggests a boredom trade is one placed to keep yourself occupied and may not be subject to the rigorous processes other trades would be. Investing purely as a hobby may also fall into this category, a hobby is a form or entertainment, investing is a way of accumulating wealth. You must separate the two.
- Paying Too Much in Fund Charges
This is an easy mistake to make and many of you reading this are doing it. Many take the view that investing in a fund like an OEIC or Unit Trust is the best way to gain professional input, this maybe the case for those uninterested in building their own portfolio but also can prove expensive as annual fees erode gains. An alternative is using an advisory stockbroker to access the professional research and expertise you are lacking going it alone.
- Lack of Diversity
This applies to not only the number of individual shares you have in your portfolio but also the sectors and different asset classes. Having a low number of stocks (under 10) leaves you open to a substantial impact on your portfolio if one company suffers an unexpected drop. Many professionals recommend over 20 but not more than 50. There is no ideal number but more down to an individual’s risk tolerance and time horizon. Having a good range of different asset classes is also important, many investors may over allocate to stocks and neglect bonds, property and commodities.
- Paying Too Much Tax
Nobody likes paying tax. As well as it being hated, tax can also reduce investment returns over in the long term which is a serious concern. Fortunately, over the years the UK government have introduced the PEP, ISA, NISA, SIPP, EIS and SEIS to help protect against taxes and boost your savings. Use them.
- Trying to Pick the Bottom
Also known as ‘catching a falling knife.’ Ok, a stock that was trading at 1000p certainly looks cheap if it falls to 550p but who are you to say the rest of the market is wrong and it will not go any lower. It is usually best to wait for some stability and for the market to turn around before piling in.
- Not Admitting You Are Wrong
There is no room for stubbornness in the financial markets and sticking to a view that is quite clearly wrong is a very quick way to the poor house.