Think Like the Great Investors: Make Better Decisions and Raise Your Investing to a New Level

Chapter 30

Seven investing sins

Typical private investors ride an emotional roller-coaster as markets lurch from bull to bear. They will become interested in stocks in the last wild stages of the bull market. Quite likely their first purchase will show a profit, and they are hooked on a new addiction that they think will make them rich. Many will try their hand at speculation, which these days goes by the more respectable name of trading, rather than investing. They move into more exciting, but risky stocks. Some will even go so far as to become full-time day-traders. They attend seminars and buy software that will tell them what to buy and when to sell.

Then the bubble bursts. Having no experience with the cycle of the markets, they freeze. Former speculative favourites fall spectacularly and horrendous paper losses lock in those who were never prepared for, and don’t know how to handle, falling markets. They swear off stocks for life, blaming the promoters and managers of the companies, the regulators, governments and anyone they can think of, except themselves.

The better professional investors and experienced private investors play a totally different game. It is lonely and they are constantly challenged by having to act differently to the crowd and somehow resist the siren calls to join the crowd in their lemming-like rush toward the financial cliff edge. These investors ...