Everything Investments introduces readers to three common mistakes that Warren Buffet points out for investors to avoid. Those would be trying to time the market, trying to act like a high-frequency stock trader, and over spending on fees. The idea of building wealth through investing in stock is an idea that appeals to a lot of people. So lets explore these common mistakes of investment.
Mistake #1: Timing the Market
Warren Buffet points out that people think that they have control of the market, or that if they listen to certain people they will learn to control the market. The reality is that the market has a mind of its own and the freewill to roam where it will. People who try to figure out the movements, timing, or rhythm of the market are wasting their time. Buffet calls it a big mistake.
Mistake # 2: Acting like a High-Frequency Stock Trader
High frequency buyers buy and sell fast. It is a nickel and dime type of profiting. It takes a lot of time to work this strategy, and a lot of investment capital. Most amateur investors do not have the capital to risk high frequency buying. Buffet indicates that buying a stock and holding onto it for the long haul is more profitable because time is on your side.
Mistake # 3: Overspending on Fees
If we talk about costs, and there are a lot of costs to discuss, then focus on the fact that every penny that is associated with the cost of buying, selling or managing an investment pushes profitability that much farther away. For example, you buy a share of stock that costs you $100. You have to pay a fee to buy the stock. If that fee is $8, then the real cost of your stock is $108. That means that before you can even break even, the stock’s price must rise to $108. This example is also a good tool to see why frequent buying and selling does not work well. It costs too much.
Fees, management fees, etc. are all part of the cost structure for which investors need to come to terms. When you start to talk about managed funds, then you have to look at the management costs of each fund you consider as an investment. High costs dilute your earnings, reduce your investment capital, and they increase the risk of losing money on your investment. The longer you have to hold an investment before it becomes profitable, the longer your money is tied up with that investment. Everything Investments is not suggesting that you sell your investment as soon as they become profitable. It is usually much better to hold investments so that you can maximize the long-term earning potential of each investment.
You have to be the judge of how to manage your investments. A strategic investment plan is an awesome tool. It allows you to see the future, determine risk, and provide you with the guidelines of when to sell, and when to buy. Those are the things on which require your focus.