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Investing Mistakes : best investors with their worst mistakes

Investing Mistakes : best investors with their worst mistakes

Most books tell you their success stories but few actually tell you the realities of struggles these successful investors go through.

1) Success in one part of life does not mean they succeed in all areas of life.
There are investors may be successful when it comes to investing but they have big problems in their other parts of their lives like marriage, family, addictions etc.

2) Benjamin Graham lost money in the Great Depression.
Benjamin Graham who is one of the grandfathers of investing, had lost almost 70% during the Great Depression. He thought that the market was at the depths of it and went in strongly and even leveraged. What he did not know was that it would have taken a longer time than expected to recover. The news hardly published the struggles he went through during that point of time. That is also around the time he coined “Margin of safety”.

3) Expect losses when investing
If a person will be investing, he has to know that there will be pockets of time that losses will appear in his statements and that is normally expected.
Charlie Munger drove home the point. Munger said: “We got drubbed by the 1973 to 1974 crash, not in terms of true underlying value, but by quoted market value, as our publicly traded securities had to be marked down to below half of what they were really worth. “It was a tough stretch – 1973 to 1974 was a very unpleasant stretch.”
The difference between Munger and other investors is that he expected to lose money on occasion. He builds it into his investment process which helps him control his emotions when it does happen. Far too many investors hope and pray that they’ll never experience a market or portfolio crash. It’s just not realistic.

4) Know yourself
There is no right or wrong way in investing for a person or an organization. Every person is unique and special.
What I’ve learned over time is that even the best investment strategy is worthless if it doesn’t align with your personality, values or way of looking at the world.
Every philosophy or strategy has its effects so the best route is to find something that has a high probability of working that you have a high probability of sticking with.
An seasoned investor writes, “It took me around seven years and nearly $30,000 in commissions to realize that I was not going to be the next Paul Tudor Jones. I was too emotional to be a successful trader, which led me into the arms of funds.”

5) Admitting to your mistakes when it happens
Everyone makes mistakes or is wrong in the markets so the best way is to know and know that sometimes mistakes might occur.
In fact, one of Buffett’s strengths is in recognizing that mistakes are part of the game. Buffett has included the word “mistake” 163 times in his annual letters. He, like everybody else who has put a dollar into the market, is no stranger to lousy investments.
This extends beyond the investment world as well and into other parts of life. Admitting to your mistakes and learning from it is a path to success.

Speak with your experienced investment advisor to know how you can invest appropriately.

Investing is more about emotions than knowledge

Investing is more about managing emotions than knowledge.

More money is lost because an investor did not know how to mange emotions rather than investments.

In investing, we tend to have lots of bias which leads us to make very emotional decisions especially in a volatile market.

However, we can find ways to control our emotions, bias and even take advantage of situations.

Here are the common bias.

Bias 1 : Herd Instinct.
This leads to follow everyone else just because they are doing it. When markets are in a sell off mode and everyone is fleeing, there is an irrational decision to sell before more losses are made. Even if it is irrational, the fact that everyone is doing it makes it seem logical to follow.

Bias 2 : loss aversion (heads or tails)
We are very willing to make money but most of us are very unwilling to lose money. The first of sight of loss of money comes and we feel jittery about it. We should instead know what goes down on a highly diversified basis will always go up. In fact, down markets present good buying opportunity and bad selling options.

Bias 3 : recency bias
Based on our own experiences, mostly bad, we are paralyzed by fear and do not want to make decisions to move forward to plan to invest. Or because we had a great market last year and we want to chase that return. This blurs our perception of what might happen again.

Bias 4 : familiarity bias
We mainly invest in things we are familiar and comfortable with. For example, we stay in Singapore so we naturally will find opportunities in Spore. However, we might not be open to potentially better opportunities elsewhere because we have not heard about it or are comfortable with it.
If we look elsewhere in China, India, technology and small cap companies in Asia, we could find great opportunities that we might not have thought about.

Bias 5 : overconfidence
Most people think we are better investors than average. However, do not underestimate the sudden change of the market. We have seen traders who had consistently made money for 2 years in a row lose all of it and more in one single trade because they became overconfident.

Speak with your experienced investment advisor to have a conversation on how to control the avoid the above bias.