When investing, it’s easy to get blocked by the following barriers, making your investments stunted and unprofitable.
Emotion is one of the most human things that we experience. The fear and greed that many investors feel usually clouds their ability to rationally think through an investing opportunity, and these lead to poor investment decisions and usually a loss of money.
For instance, even though it is an investor’s best interest to sell high and buy low, investors still hate to sell winners and are hesitant to buy falling stocks. Also, many investors hold onto winning investments for too long.
When they fall back, investors still continue to hold these stocks, hoping that they will return to their former glory. They even tell themselves that they will sell, if the price returns to the price level at which they first bought it.
Meanwhile, there are also those investors who hold on to losing investments for too long, thinking that if they wait enough the shares could recover. They often think that they can sell it at least to get even, sometimes even adding to a loser.
Their capital is tied up in a losing investment and is, therefore, unable to produce a return. This diminishes the account balances and increases the stress levels of the investor.
Lack of Knowledge
Sometimes investors incorrectly think that you just need to buy and sell the right stocks and you can always make some money. Investors can sometimes have little understanding of how the markets really work, what affects stock prices and successful investing performance.
Also, many investors tend to be overconfident about their ability to beat the market, compelling them to take unnecessary risks.
People are usually irresistibly drawn to strong performance, even if it’s not sustainable. That’s why investors tend to chase a hot sector without sufficiently understanding why, or the risks that are involved.
Losing Sight of the Bigger Picture
Although many investors say that they invest with a long-term perspective, they still continue to make decisions that are based on the current short-term movements and ideas.
Most investors believe that setting long-term goals for such things as buying a home, saving for college, and providing for retirement are important, yet they fail to establish viable financial plans to do so.
Without these plans put in place, their decisions are subject to the ebb and flow of the current market. Basing decisions on unpredictable market fluctuations can be very risky, and there is a good chance that these investors will stumble and make the wrong decision, preventing their ability to achieve their long-term goals.
When the average investor realizes that the market has risen, the put cash into stocks and mutual funds, aiming to capture some of the profit the professionals have gotten. When the market falls, the average investor panics and sells near the bottom.
All too often, these patterns continue, making the average investor lose much of his or her capital and making him or her become disillusioned.