Investing 101: Learning From Your Mistakes

| December 15, 2010 | 0 Comments

stock investing mistakesMaking mistakes is part of learning, and is perfectly acceptable. What’s not right, is making mistakes and not learning from them, so that you make the same mistakes over and over again. A common problem with investors is that they take too much credit for their successes and too little responsibility for their losses. This leads to overconfidence, which then typically results in more aggressive trades that can possibly turn awry.

As you can expect, this is very dangerous, especially for the novice investor. It gets even more perilous if the unskilled novice investor gets lucky with overconfidence, and makes a string of good trades. This may cause him to make even larger trades and may one day face the situation of a big catastrophe.

With trading, good decisions bring about pride and happiness, but bad decisions bring about regrets and anxiety. It is also usually not proportional – given the same absolute dollar amount in losses and gains, people are more affected negatively if the stock price went down, than they would be happy if the stock price went up. As such, you typically see people more willing to take risks if it means that they would avoid losses. On the other hand, these same people may not necessary take the risk if it means that they may stand to realise some gains.

The most important thing when trading is to look at your past trades objectively. Don’t just chuck them aside – no matter if they were bad or good trades. You need to understand exactly what went wrong, so that you don’t make the same mistakes again.

Also – don’t be fooled by external factors such as the market. In a bull market, it’s easy to make money while going long on a stock. It may not be as easy if it were a bear market. If your trade may have been because of this, then make sure that you make it one of your considerations in your post-analysis.

A good habit to form is to write down whatever mistakes and observations that you make, and see if you are repeating any of them. These are simple statements that differ from individual to individual, but a basic one could something as simple as, “Avoid going long on stocks that have come down off their resistance levels”.

Keeping these statements to guide you along your investing journey, and learning from your past mistakes, will only serve to make you a better, happier, and more successful investor!

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Category: Learn to Invest & Trade

About the Author ()

John Tan has been Vice President of BlueTrust Investments Corporation for 6 years since the mid-90’s. He has since moved on, to be a professional full-time trader.

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