Morningstar's Fund Spy lists three critical investing mistakes to avoid:
Don't read too much into the recent past - Instead of doing the necessary and possibly tedious homework to research a potential investment, investors "anchor" their expectations for the future in the recent past.
The problem, of course, is that yesterday doesn't always tell you what tomorrow will bring. If you don't believe us, just ask investors who swarmed red-hot technology- and Internet-focused stocks in 1999 and 2000 expecting the good times to continue. They didn't, and most folks ended up suffering huge losses.
You don't know as much as you think - We think we're more capable and smarter than we really are. As an investor, you should check your excessive optimism at the door. You might believe you're more likely than the next guy to spot the next Microsoft, but the odds are you're not.
Keep winners longer and dump losers sooner - (Behavioral-finance) noticed that investors would rather accept smaller but certain gains than take their chances to make more money. On the flip side, investors are reluctant to admit defeat and sell stocks that are underwater in hopes of a rebound. As a result, investors tend to sell their winners too early and hang on to their losers for too long."
And as long as you're in an investing-rules-list-reading kind of mood, take a gander at our oldy but goodie (circa 2000) Seven Golden Rules of Mutual Fund Investing. Note that fund data pages have changed since then - please review current definitions of metrics by rolling over the terms on our new data pages.
Resist the Urges
Morningstar's Fund Spy lists three critical investing mistakes to avoid:
Don't read too much into the recent past - Instead of doing the necessary and possibly tedious homework to research a potential investment, investors "anchor" their expectations for the future in the recent past.
The problem, of course, is that yesterday doesn't always tell you what tomorrow will bring. If you don't believe us, just ask investors who swarmed red-hot technology- and Internet-focused stocks in 1999 and 2000 expecting the good times to continue. They didn't, and most folks ended up suffering huge losses.
You don't know as much as you think - We think we're more capable and smarter than we really are. As an investor, you should check your excessive optimism at the door. You might believe you're more likely than the next guy to spot the next Microsoft, but the odds are you're not.
Keep winners longer and dump losers sooner - (Behavioral-finance) noticed that investors would rather accept smaller but certain gains than take their chances to make more money. On the flip side, investors are reluctant to admit defeat and sell stocks that are underwater in hopes of a rebound. As a result, investors tend to sell their winners too early and hang on to their losers for too long."
And as long as you're in an investing-rules-list-reading kind of mood, take a gander at our oldy but goodie (circa 2000) Seven Golden Rules of Mutual Fund Investing. Note that fund data pages have changed since then - please review current definitions of metrics by rolling over the terms on our new data pages.
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