Four Mortal Sins in Investing

Why four mortal sins and not ten? Well, why not? Four is a nice number and if I find the fifth mortal sin, I will certainly inform you about that.

Buying on rumors or recommendations

Having hundreds and thousands of opportunity for investing, it is hard to choose the right ones. There is a lot of information floating around, and it is hard to process all data. Therefore, people tend to use shortcuts. For example someone could tell you about marvelous product by XYZ company, and you buy stocks of that company in belief that the price of that company will grow. The net result is usually negative.

Does this mean that I shouldn't trust anybody? Exactly! The person that recommends you something, or spread the rumor probably would not sign that if you loose money he will cover it.

Belief in "money for nothing"

Belief that there is something for nothing is widespread. Why is that so, I wouldn't know. Analogy in animal world would be that a lion is lying in the shadow of a great tree, and the zebras are throwing themselves before the lion committing suicide. Occasionally you might get lucky, but only occasionally. How is this belief related to the investing? Information like "You should buy this stock and that will make you rich" are probably just marketing tricks, and you should not consider such messages. There are a lot of preparations to be done before you buy any investment. Therefore, it is necessary to invest your time and effort in order to buy a good opportunity, and that is a general principle in life. More work means more money.

Not having an investment plan

What is an investment plan? It is your statement about what do you expect and what are you willing to do to achieve that. For example, expectation is an amount desired in 20 years form now, and you are willing to invest 2500$ annually. As with other plans, after a certain period of time you should investigate if there is a need to change it. Usually reduce your expectation and/or increase your activity to achieve the goals. You should not change your plan to often. For example, after one year you can find that you cannot invest 2500$ per year but 1750$ per year. Of course, then you should change your plan. You should not change your plan before you try really, really hard to follow your investment plan.

Not following your investment plan

Once you set the plan, it is of absolute necessity to follow your plan. If you react at a certain moment and do something that is not planned your expectation could be unfulfilled. What can you do then? You have no information if this plan works or not because you have changed it. So, you can only start again with less money. But be aware! There are a lot of emotions in investments, and it is very easy to forget about rules. I happened to be the "victim of rumors" a couple of times. The interesting thing about this is that I did know these rules, but forgot them when "excellent opportunity" appeared. Therefore you should practice self discipline as much as possible. That is good for you in other areas in life.

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