The Motley Fool

3 Things to Avoid When Investing

Many investors give up on buying shares because they get frustrated at getting nowhere, fast.

But here at The Motley Fool Hong Kong, we believe that we can help everyone become better investors, if they just avoid some common mistakes.

Here are the three of the most common ones.

Mistake #1: Holding onto losers

When investors first start buying shares, they do so with high hopes of making money. But when things go wrong with the companies that they have invested in, they tend to hang on and wait for something miraculous to happen.

Because of denial, a portfolio may, over time, become peppered with many loss-making shares.

That’s why it is important to avoid anchoring investment decisions on the price that we have paid for a share. Instead, we should write down the main reasons why we are buying shares in a company at the time of investment.

We call this journaling. That way, if the reasons for investing in the company have changed appreciably, then we might want to reconsider.

Mistake #2: Diversify

A sensible approach to investing is to avoid putting all our eggs into one basket.

If there is one lesson that we should have learnt from the financial collapse of 2007, it is that owning too many shares in any one sector, such as banks, could be as dangerous as being overweight in one company.

This doesn’t mean that we must spend lots of time managing our investments.

Instead, just keep an occasional eye on the portfolios to ensure that we are not too dependent on just a handful of shares.

Mistake #3: What’s my style?

Not knowing why, how and what to invest in is probably another common mistake.

When we first start investing, it is unlikely that we will have identified a style that suits us. So, we may buy a bit of this and a bit of that.

This is understandable because it can take time to identify an investing style that is right for our individual personalities.

After all, asking new investors whether they prefer income, growth, GARP, blue sky, value or, for that matter, any other style, is almost as unfair as asking young children what they want to be when they grow up.

However, after you have bought a few shares and invested for a little while, it should slowly become apparent what you like to invest in.

Knowing me, knowing you… Aha!

Here at The Motley Fool Hong Kong, we are a broad church that embraces all styles of investing. We believe that there is no right or wrong style – just one that is right for you.

It is unlikely that we will know at the outset which one it might be. But once the penny drops, it will become a lot clearer.

I call it the “Aha!” moment – the moment when we become a better investor.

Motley Fool Hong Kong is not licensed by the Hong Kong Securities and Futures Commission to carry out any regulated activities under the Securities and Futures Ordinance.