While investing is important, not everyone has training or background in investing. N.C. State University economist Mike Walden discusses some of the common errors made by rookie and veteran investors.
“There are many, but let me identify what would be my top five. I think number one is the idea that you should always and can always win with your investments. Even the most successful investor is going to invest in some losers, if you will. It’s very, very difficult to predict where particular investments are going, so if you are an investor, you shouldn’t have this mindset that you have got to win with every single decision that you make.
“Second big error, I think, is the assumption that the future will be a repetition of the past. Many people pick investments by saying, alright, ‘What stock has gone up the most in the past 10 years? I’ll assume it will go up at that rate in the future.’ That’s often not the case.
“Third error is to think that you can outsmart the market. The market is really composed of all the millions of people that are investing. There’s a great power in the market in the fact that that market is going to try to account for everything that’s affecting investments. To think that you individually can somehow find something that millions of people have not found — it really is somewhat far-fetched. So I think you have to be moderated by the notion that the market is going to be ruling the investment world.
“Fourth, that you can anticipate everything that is going to affect your investments. People get made, for example, if something happens geopolitically. ‘Oh, I didn’t think about that.’ Well it’s hard to know those things are going to happen.
“Then, lastly, waiting too long to sell — waiting too long to sell an investment that’s not performed. Many people think, ‘Well, I bought it; I made a decision to buy it; I just have to give it more time.’ Sometimes you need to cut your loses.”