Becoming a competent investor involves being able to distinguish those activities that are likely to make a positive contribution to growing your wealth from those that have little impact or, even worse, actually make the process a whole lot harder.
Here are what I consider to be four of the latter.
1. Constantly checking your portfolio
Unless you’re a day trader (the vast majority of whom struggle to beat the market consistently), there should be no need to check how your portfolio is doing on an hourly, daily or even weekly basis. Doing so could be an indication that you’ve miscalculated your tolerance for risk/volatility.
This is not to say that there’s anything wrong with checking how your stocks are performing from time to time, of course. Adopting a ‘buy and hold’ mentality is very different from not bothering to see whether you’re on track to reach your financial goals until it’s too late.
2. Not rationing social media
In addition to not sweating over your portfolio too often, I’d also recommend rationing your time on social media (such as Twitter) and share bulletin boards.
As entertaining at these sites can sometimes be, the signal-to-noise ratio is often very low. Remember also that at least some of these platforms are intentionally designed to be addictive, thus stealing away time that could be better spent researching a company.
Limiting your use of social media is particularly important if you find that you have a tendency to make impulsive money-related decisions. While there will be many genuine investors out there in the social networking highway, there will also be those looking to exploit others by continually posting bullish/bearish comments on particular companies in the hope of driving the price up/down. Remain sceptical of any claims until you’ve had a chance to verify them.
3. Wanting certainty
Regardless of how much research we do, we can never be exactly sure as to how our new favourite-stock-on-the-block will behave. Trying to predict the direction of anything in the market in the near term is a fool’s errand. Far better to focus on becoming a part-owner of great businesses and holding these stocks for decades rather than a few hours.
Clearly, getting a thorough grip on a company before buying is essential. But not committing to your best ideas after hours of study due to the need for certainty is just a recipe for not growing rich (unless you’ve found reasons not to buy a stock, of course).
So, don’t look for guarantees. Look for situations where the probability of achieving a favourable result is high while also recognising that a less-than-favourable result can still happen even when your decision-making process is flawless.
4. Using a dummy account
While setting up a dummy account to learn the basics of investing sounds a good idea in theory, I think it’s actually counter-productive for most since it neatly removes a huge challenge that all market participants must face, namely learning to control their emotions.
Seeing one of your holdings fall 50% in a dummy account calls for nothing more than a shrug of the shoulders. Losing 50% of your money in a real position is infinitely more stressful because it has consequences.
Successful investing is as much about psychology as it is about business. The sooner this is realised, the better.
