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Traditional values in life can cause portfolio destruction.
It seems to me the traditional strengths and values that work so well in general life can fight against us in investing and create portfolio losses.
I think I've heard it said that investing could bring us face-to-face with whom we really are and make us question everything about our motivations and beliefs. If I haven't heard that, well, I'm saying it now.
Consider the following five examples of traditional values, which I'm convinced need to be reversed for investing success:
1. Persistence
Although an admirable trait in life, persistence can let us down badly in the world of investing.
Once we've carried out the hard work of researching and analysing the company behind a share, it's tempting to stick with it through thick and thin -- to persist, and that can be a disastrous strategy.
Persistent investors who averaged down into declining names such as Royal Bank Of Scotland (LSE: RBS), Dixons Retail (LSE: DXNS) and Taylor Wimpey (LSE: TW) a few years ago can vouch for that.
It's better to be fleet-of-foot in the world of investing -- the private investors' secret weapon -- and to sell up if the outlook changes.
2. Control
We often attempt to control things, such as the temperature of our environment, the interruptions to our working day and even each other. Being in control makes us feel secure, on top of things and protected from nasty surprises.
It's therefore tempting to feel that we are in control of our investment portfolios, but really, we have very little control over what happens within the companies behind the shares. As such, the potential for nasty surprises is huge, despite all the research and analysis we may have done to help control the risk.
It's a good idea to forget about feeling in control and to be more reactive to the random circumstances of luck that affect all portfolios, such as BP's (LSE: BP) Gulf of Mexico blowout last year. The only meaningful control we have is slight and usually amounts to the ability to buy or sell, and that's a form of control that should be exercised expediently, in my view.
3. Loyalty
Loyal relationships can yield great results, but not when they are with your share holdings.
Although friendships can last a lifetime, it's best to turn your back on companies that start to let you down because the story has changed. If things go wrong with the outlook for your share holdings, or if the numbers start to slip, it's often best to sell and move on.
4. Faith
In life, it seems to me that faith in people, dreams and outcomes, is a good thing. With investments, it's different, and we should not run our financial affairs on faith at all.
Relying on faith that a company's management team can turn a fallen business around, such as Trinity Mirror (LSE: TNI) and HMV (LSE: HMV), or that loss-making 'jam tomorrow' companies such Sarantel (LSE: SLG) or Renewable Energy (LSE: REH), will become profitable, is folly. If the numbers don't show the progress that is hoped for, it might be time to ditch your hopes along with the companies' shares.
5. Optimism
There's nothing more positive and uplifting than being around optimistic people: the type of people that always see the positive in life, whatever the circumstances. However, when it comes to investing, I reckon the best attitude to have is a pessimistic one, at least in the first place.
When evaluating and researching potential investments, a healthy dose of pessimism can help to see the potential for things to go badly or, at least, not as well as hoped, and that can help ensure that when companies are valued, a good margin of safety is included in the price paid for the shares.
For example, I have my eye on companies such as Cranswick (LSE: CWK), Regus (LSE: RGU) and Wm Morrison (LSE: MRW), but the rose-tinted spectacles have been left in my non-investing life. If these companies don't deliver the numbers, they'll be ditched, and any new purchase will be as cheap as possible compared to the prospects of the business.
Bottom line
In my opinion, what could be considered a virtue in life, can be a sin in the world of investing when it comes to generating portfolio returns, as these examples demonstrate. If you can think of any other traits that could harm a portfolio, please tell me in the comment boxes below.
BY
Kevin Godbold
http://www.fool.co.uk/news/investing/2011/10/13/5-traits-of-a-bad-investor.aspx?source=uhpsithla0000002
@ Moderators
Please shift this post to appropriate section if you need.
It seems to me the traditional strengths and values that work so well in general life can fight against us in investing and create portfolio losses.
I think I've heard it said that investing could bring us face-to-face with whom we really are and make us question everything about our motivations and beliefs. If I haven't heard that, well, I'm saying it now.
Consider the following five examples of traditional values, which I'm convinced need to be reversed for investing success:
1. Persistence
Although an admirable trait in life, persistence can let us down badly in the world of investing.
Once we've carried out the hard work of researching and analysing the company behind a share, it's tempting to stick with it through thick and thin -- to persist, and that can be a disastrous strategy.
Persistent investors who averaged down into declining names such as Royal Bank Of Scotland (LSE: RBS), Dixons Retail (LSE: DXNS) and Taylor Wimpey (LSE: TW) a few years ago can vouch for that.
It's better to be fleet-of-foot in the world of investing -- the private investors' secret weapon -- and to sell up if the outlook changes.
2. Control
We often attempt to control things, such as the temperature of our environment, the interruptions to our working day and even each other. Being in control makes us feel secure, on top of things and protected from nasty surprises.
It's therefore tempting to feel that we are in control of our investment portfolios, but really, we have very little control over what happens within the companies behind the shares. As such, the potential for nasty surprises is huge, despite all the research and analysis we may have done to help control the risk.
It's a good idea to forget about feeling in control and to be more reactive to the random circumstances of luck that affect all portfolios, such as BP's (LSE: BP) Gulf of Mexico blowout last year. The only meaningful control we have is slight and usually amounts to the ability to buy or sell, and that's a form of control that should be exercised expediently, in my view.
3. Loyalty
Loyal relationships can yield great results, but not when they are with your share holdings.
Although friendships can last a lifetime, it's best to turn your back on companies that start to let you down because the story has changed. If things go wrong with the outlook for your share holdings, or if the numbers start to slip, it's often best to sell and move on.
4. Faith
In life, it seems to me that faith in people, dreams and outcomes, is a good thing. With investments, it's different, and we should not run our financial affairs on faith at all.
Relying on faith that a company's management team can turn a fallen business around, such as Trinity Mirror (LSE: TNI) and HMV (LSE: HMV), or that loss-making 'jam tomorrow' companies such Sarantel (LSE: SLG) or Renewable Energy (LSE: REH), will become profitable, is folly. If the numbers don't show the progress that is hoped for, it might be time to ditch your hopes along with the companies' shares.
5. Optimism
There's nothing more positive and uplifting than being around optimistic people: the type of people that always see the positive in life, whatever the circumstances. However, when it comes to investing, I reckon the best attitude to have is a pessimistic one, at least in the first place.
When evaluating and researching potential investments, a healthy dose of pessimism can help to see the potential for things to go badly or, at least, not as well as hoped, and that can help ensure that when companies are valued, a good margin of safety is included in the price paid for the shares.
For example, I have my eye on companies such as Cranswick (LSE: CWK), Regus (LSE: RGU) and Wm Morrison (LSE: MRW), but the rose-tinted spectacles have been left in my non-investing life. If these companies don't deliver the numbers, they'll be ditched, and any new purchase will be as cheap as possible compared to the prospects of the business.
Bottom line
In my opinion, what could be considered a virtue in life, can be a sin in the world of investing when it comes to generating portfolio returns, as these examples demonstrate. If you can think of any other traits that could harm a portfolio, please tell me in the comment boxes below.
BY
Kevin Godbold
http://www.fool.co.uk/news/investing/2011/10/13/5-traits-of-a-bad-investor.aspx?source=uhpsithla0000002
@ Moderators
Please shift this post to appropriate section if you need.
