Investor mistakes and their common-sense remedies |

Investor mistakes and their common-sense remedies

Richard Loth

Smart professional investors agree that when it comes to successful investing, one of the most important techniques is to simply avoid mistakes. Collectively, individual investors lose billions of dollars each year by not sticking to proven investment principles. The resulting errors in judgment translate into unnecessary portfolio losses. My remarks here are intended to highlight six common investor mistakes and to provide some common-sense suggestions for their respective remedies. Watching too much CNBCI don’t mean to pick on this particular network, but its unending stream of market news and analysis is simply overwhelming and unwarranted. Any intelligent observer quickly concludes there is not enough substantive material to fill the air time dedicated to 24/7 financial news. Worst of all, the exaggerated short-term focus of this reporting and its breathless, dramatic presentation can turn routine events into got-to-know news. This type of reporting lacks perspective. My remedy? Switch to another channel or read a good investment book, such as those I talked about in my July 22 article. Ignoring the costsPay attention to what you’re paying for your investing activities. We are going to be in a relatively low-return investment environment for the foreseeable future. Small savings on investing costs and expenses related to brokerage accounts and mutual funds can translate into big dollars over extended periods of time. My remedy? Become a cost-conscious investor by paying reasonable fees to investment advisers, invest in low-cost mutual funds, and minimize trading activity in stock and bond accounts. Focusing on returns, ignoring risks Chasing high investment returns is a loser’s game. Generally, risk and return are commensurate – you can’t get one without the other. Not understanding the risks of a given investment oftentimes leads to some very unhappy returns. My remedy? For most individual investors, building a retirement nest egg entails taking average risk in a mix of stock and bond investments – 60 percent of the former, 40 percent of the latter – by regularly investing in quality issues over the long-term. Over reacting to short-term eventsThe news media bombards us with an avalanche of political, economic and business news on a daily basis. The “proximity” of these events, and their headlines, get our attention and distract us from the more important long-term perspective we need as investors. Reacting quickly in a fearful panic generally results in bad investment decisions. My remedy? Be patient, have a long-term plan and stick to it. Successful investing for individual investors is a lifetime proposition. In the investing world, bad things can happen quickly. But, if the fundamental strength of your investment position hasn’t changed, don’t let short-term, transitory events knock you off course. Trying to time investments Most individual investors are obsessed with buying low and selling high at just the right time to get the very best price. And why not? It’s a sure way to make money. There’s only one problem – even investment professionals haven’t figured out how to do this on a consistent basis. My remedy? Just say no – market-timing doesn’t work. Trying to hit ‘home runs’When it comes to investing, swinging for the fences, – like market-timing – just doesn’t work. Trying to invest in outright, immediate winners, dictates that you’ll strike out more often than not, which means big losses. My remedy? Using tactics from our national pastime – go for singles and doubles or even walks, but get on base anyway you can and you’ll end up scoring well when it comes to investing. Financial brilliance is not necessary to be a successful investor. But, you have to do your homework and become a patient, quality-oriented investor with a long-term perspective. Avoiding investment mistakes is an important part of that process. Richard Loth is managing principal of Mentor Investing, an independent registered investment adviser. Loth can be reached at (970) 827-5591, or Colorado

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