Mistakes investors make, part 1

Mistakes are part of investing and everyone, including professionals, make them. The important thing is to learn from your mistakes.

Not selling shares just because they are at a loss

Many investors are finding it difficult to sell loss-making shares. Research has shown that losses sting more than gains, but an investor should still always look at the company's ability to deliver results and how well the company is adding value to its stakeholders, including shareholders. If a share is running at a loss in your portfolio, it’s better to start by reviewing why you decided to buy the share, whether that reasoning has changed or whether your analysis was wrong in the first place. 

It’s better to sell the share at a loss if the company's performance is worse than expected or has permanently deteriorated and the expected return on the share no longer matches previous expectations. As they say, cut your losses quickly and let the gains flow.

Selling shares just because they are in profit

The fact that the share is in profit isn’t in itself a reason to sell your stake. In the best case, the share will never give you a reason to sell it off. If the company continues to perform consistently or even improves and is not, for example, grossly overvalued, why do anything? If you keep purging your portfolio of profitable stocks and keeping loss-making ones, you can easily end up with a portfolio full of companies that are doing badly and that you really don't even want to own. Sooner or later (usually sooner) the investor's returns start to look equally bad. 

Feeling that you can create added value through timing

Many investors may not understand the nature of a share as a stake in a real company and business but speculate on where the share price will move. In this case, the investor may feel that they can add value by timing their investments by always buying when the price is rising and selling before it falls. After all, it’s almost impossible to time the market and no one can know with certainty when the market will peak or when the next down market will start. For the private investor, this often leads to too much trading, which in turn leads to unnecessary costs that eat into investment returns. 

In the short term, good stock returns are more the result of random market movements than successful stock picking. It takes a long time to get feedback on your own investing performance, which is why success should be measured in marathons over several years, not in sudden sprints. Jumping to conclusions too quickly is usually misleading and often especially newcomers confuse successes based on luck with skill. When you become overconfident, it's easier to take unnecessary risks. Investors should always look at their own successes and the reasons for them over the long term, so that they can continue to repeat success in the stock market.