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Esther.Dumbiri

10 Simple Ways To Avoid Common Investing Problems (Continued)

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6. Falling in Love with a Company

Too often, when we see a company we've invested in do well, we easily fall in love with it and forget that we bought the stock as an investment. Always remember: you bought this stock to make money, so, if any of the fundamentals that prompted you to buy into the company changes, consider selling the stock. No sentiments!

7. Lack of Patience

How many times has the power of slow and steady progress become imminently clear? Slow and steady usually comes out on top - be it at the gym, in school or in your career. Why, then, do we expect it to be different with investing?

Many people like to refer to themselves as longer-term investors. But when it comes down to it, most investors want to see results in the first 12 to 24 months of owning a particular stock.

Fact is, a slow, steady and disciplined approach will go a lot farther over the long haul. This means you need to keep your expectations realistic in regard to the length, time and growth that each stock will encounter.

8. Market Timing

Successfully timing of the market is extremely difficult to do. Even institutional investors often fail to do it successfully.

A well-known study, "Determinants Of Portfolio Performance" (Financial Analysts Journal, 1986), conducted by Gary P. Brinson, L. Randolph Hood and Gilbert Beerbower covered American pension-fund returns. This study showed that, on average, nearly 94% of the variation of returns over time was explained by the investment policy decision.

In layman's terms, this indicates that, normally, most of a portfolio's return can be explained by the asset allocation decisions you make, not by timing or even security selection. So, timing should not really be a reason not to invest as long as the decision follows diligent research and investigation.

9. Waiting to Recover Loss

Waiting to recover losses may just be another way to ensure you lose more or any profit you might have made because you are waiting to sell a losing stock until it gets back to its original cost basis. Dream on!

Behavioural finance calls this a "cognitive error." By failing to realize a loss, investors are actually losing in two ways: first, they avoid selling a loser, which may continue to slide until it's worthless. Also, there's the opportunity cost of what may be a better use for those investment.

10. Lack of Institutional Knowledge/Research

The relative lack of knowledge about future earnings potential, opportunities for growth, competitive forces, etc. can adversely impact investment results. In fact, a lack of knowledge is another major reason why many individual investors tend to underperform in their investment decisions.

This is compounded by the fact that analysts can sit and wait for new information, while the average investor has to work and attend to other matters. This creates a lag time for individual investors, which can prevent them from getting in or out of investments at the best possible moment.

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