10 More Investment Mistakes

Back in 2007, I wrote a post about the top 10 investing mistakes that I've made. I'm happy to admit that I've stopped making some of them, but I still make far more of them than I'd like. It's important to remember that investing is a process that involves not only learning new lessons, but re-learning old one. With that in mind, I took a hard look at myself and determined costly mistakes that I still make. Hopefully I can eliminate one or two of these habits and raise my returns by a percentage or two.

1. Using a market instead of a limit order. I usually do this because I'm overeager to establish a position. I need to learn patience.

2. Not scaling into a position, either when buying or selling. This is form the same reasons mentioned above.

3. Selling winners and keeping losers. Wishful thinking doesn't produce winning investments.

4. Investing without a goal or plan. The way you invest for a taxable account should be different than how you approach growing your 401(k).

5. Ignoring asset allocation. Stocks have outperformed bonds over the last 200 years, but bonds have outperformed stocks for some really long periods during that time. While I feel that your portfolio should have an equity bias, don't ignore bonds, especially when they're cheap relative to stocks. Valuation is really important. Also, don't forget to re-evaluate and re-balance your portfolio periodically.

6. Not having a plan for selling. I know that Buffett says that his ideal holding time for a stock is forever. It just isn't mine.

7. Buying on a hunch or impulse. In my experience, this ends in losses more often than not. Then again, it could be that my hunches are generally terrible.

8. Expecting an immediate gain from a purchase. It can take a while for the rest of the market to come to the same conclusion as you. Give them a little time.

9. Comparing your results to those of others. Comparisons are never kind. Don't do it.

10. Not stepping away from the market periodically. There are a lot of things that become clearer once you get some distance between you and the ticker.

Most of these erros are the result of a lack of discipline and a lack of patience. These are two of the hardest things to develop, but getting better at them will yield significant gains for your portfolio.

Jim Rogers and the value of patience in investing

If you haven't read the Jim Rogers interview in Market Wizards, you should do so immediately. It's a really good primer on a) sticking to your knitting and b) being patient. Jim Rogers co-founded the Quantum Fund with George Soros and retired before Soros became a household name. These two were an unstoppable paring; Rogers was the analyst and Soros did the trading. These guys invested in everything everywhere; they were global macro before the term came into vogue.
Rogers invests with conviction. He finds a cheap sector, studies the hell out of it, and then waits. If nothing looks good, he'll park his money in Treasuries. As he puts it, he"waits until there's money in the corner to pick up." It sounds simple, but it's hard, really hard. Most of us have to put in a order. We love the action, the sense that we are doing something brilliant that we can then brag about on message boards or to our friends. Activity is the enemy of the true investor. Warren Buffett has often said that he wouldn't care in the stock exchanges closed down for a few years. He buys a business, not a stock certificate.