7 deadly sins of investing
As an investor, who is your biggest enemy? You. Why? Because you're a sinner. You are too easily led into temptation.There are seven deadly investment sins, and you have probably committed all of them.
But you're good at heart, aren't you? You want to do the right thing. Now is the time to repent your sinful ways, and become a better investor in the process. Here's what you need to resist.
Wrath
Emotion clouds the judgement, and few emotions cast more clouds than wrath. When that red mist descends, you lose sight of everything else.
There are plenty of reasons why investors become wrathful. You might have just made your worst investment ever, been through a costly divorce or been rocked by Britain's £750bn 'pension bombshell'.
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You get angry. To recover your losses, you decide to get more aggressive.
So you do crazy things, like shorting the FTSE, oil and silver, desperately chasing ten-baggers, or gambling your pot on some high-risk emerging market biotech start-up.
There is a time and place for aggressive investing, but it needs to be done with a cool head.
Greed
Getting greedy costs investors more than any other sin. Greed is what makes people dive into stock market and property bubbles too late. Greed is what makes you ditch a long-term hold with a decent yield for some flighty growth stock. Greed racks up your portfolio charges as you lurch between different sectors and stocks.
Greed has been a constant through investment history. It allowed tulip mania to flower. It blew up the South Sea Bubble. It triggered the technology boom.
To be a sound, long-term Foolish investor, you need to curb this particularly base instinct. Greed isn't good, and you're not Gordon Gekko.
Sloth
I always thought sloth was one of the lesser sins, and that's the case with investing. The slothful investor has some advantages. They save on dealing fees and bid/offer spreads. They avoid making rash judgements, such as buying a growth stock on a whim or selling a recovery stock too soon.
You have to give your portfolio time. Slow investing, I call it. You might call it 'buy and hold'.
But slothful investing isn't so clever if you can't summon the energy to research your investments properly before buying them, or are too lazy to ditch that high-charging, underperforming pension or fund.
Sloth or growth. It's your call.
Pride
Everybody knows what pride comes before. If you think your run of good fortune is down to your innate genius, if you think you hold the secret to making vast fortunes from penny shares, or if you think you can beat those slickers in the City year after year, you are heading for a fall.
The stock market is a tough taskmaster, and it has no time for bigheads. Nobody knows anything, so what makes you so special?
Lust
You've just got to have it, haven't you? That go-go gold miner. That trend-setting tech stock. That 10% yield. That fund that just doubled in value. That frontier market that is set to shoot the lights out, er, after the locals have stopped shooting the lights out.
This isn't Foolish investing. It's just lust.
Envy
So what if you know somebody who made a mint on emerging markets? Or shorted the banks in 2008 (then went long in early 2009)? Or bought gold at $600 an ounce?
Somebody has to make money out of investing. This time, it wasn't you. Don't be envious. Don't turn green. And don't do anything daft, like trying to follow their strategy, one year too late.
Your turn will come. Be patient.
Gluttony
The stock market is full of tempting treats. Investors are spoilt for choice. A quick run through the Motley Fool menus throws up juicy high-yielders, exotic oils, luxury goodies, big beer, pancakes and pizza and a tasty Apple.
You can't dig into all of them. You have to choose carefully. Work out which ones suit your investment palate and focus your efforts on them. Nobody likes a glutton.
Wrath, greed, sloth, pride, lust, envy, gluttony. Any of them could destroy your investment strategy. Now that really would be a sin.
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Wrath
Emotion clouds the judgement, and few emotions cast more clouds than wrath. When that red mist descends, you lose sight of everything else.
There are plenty of reasons why investors become wrathful. You might have just made your worst investment ever, been through a costly divorce or been rocked by Britain's £750bn 'pension bombshell'.
%VIRTUAL-ArticleSidebar%
You get angry. To recover your losses, you decide to get more aggressive.
So you do crazy things, like shorting the FTSE, oil and silver, desperately chasing ten-baggers, or gambling your pot on some high-risk emerging market biotech start-up.
There is a time and place for aggressive investing, but it needs to be done with a cool head.
Greed
Getting greedy costs investors more than any other sin. Greed is what makes people dive into stock market and property bubbles too late. Greed is what makes you ditch a long-term hold with a decent yield for some flighty growth stock. Greed racks up your portfolio charges as you lurch between different sectors and stocks.
Greed has been a constant through investment history. It allowed tulip mania to flower. It blew up the South Sea Bubble. It triggered the technology boom.
To be a sound, long-term Foolish investor, you need to curb this particularly base instinct. Greed isn't good, and you're not Gordon Gekko.
Sloth
I always thought sloth was one of the lesser sins, and that's the case with investing. The slothful investor has some advantages. They save on dealing fees and bid/offer spreads. They avoid making rash judgements, such as buying a growth stock on a whim or selling a recovery stock too soon.
You have to give your portfolio time. Slow investing, I call it. You might call it 'buy and hold'.
But slothful investing isn't so clever if you can't summon the energy to research your investments properly before buying them, or are too lazy to ditch that high-charging, underperforming pension or fund.
Sloth or growth. It's your call.
Pride
Everybody knows what pride comes before. If you think your run of good fortune is down to your innate genius, if you think you hold the secret to making vast fortunes from penny shares, or if you think you can beat those slickers in the City year after year, you are heading for a fall.
The stock market is a tough taskmaster, and it has no time for bigheads. Nobody knows anything, so what makes you so special?
Lust
You've just got to have it, haven't you? That go-go gold miner. That trend-setting tech stock. That 10% yield. That fund that just doubled in value. That frontier market that is set to shoot the lights out, er, after the locals have stopped shooting the lights out.
This isn't Foolish investing. It's just lust.
Envy
So what if you know somebody who made a mint on emerging markets? Or shorted the banks in 2008 (then went long in early 2009)? Or bought gold at $600 an ounce?
Somebody has to make money out of investing. This time, it wasn't you. Don't be envious. Don't turn green. And don't do anything daft, like trying to follow their strategy, one year too late.
Your turn will come. Be patient.
Gluttony
The stock market is full of tempting treats. Investors are spoilt for choice. A quick run through the Motley Fool menus throws up juicy high-yielders, exotic oils, luxury goodies, big beer, pancakes and pizza and a tasty Apple.
You can't dig into all of them. You have to choose carefully. Work out which ones suit your investment palate and focus your efforts on them. Nobody likes a glutton.
Wrath, greed, sloth, pride, lust, envy, gluttony. Any of them could destroy your investment strategy. Now that really would be a sin.
More stories
