Top 3 Investor Behavior Blunders

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Yesterday financial markets all over the world acted rather erratically. While the massive sell off was happening I read/heard/watched pundits give reasons to the chaos ranging from Greece’s financial woes, to oil speculation, to an error in a Proctor & Gamble trade, to talks of a massive technical correction that had been in the works for months.  At this point it’s up to FINRA, the SEC, and think tanks associated with investment banks to do the investigating. What I’m offering you here is a list of things to think about the next time something like this happens (even if it’s a positive move).

1. Irrational buying and selling. Don’t let a few days of market fluctuation rattle you into making a sale or a purchase that you will regret later. In the case of a loss if you sell too soon you might salvage some cash but you’ll lose out on the recovery and then possible gains. Remember you buy and sell with purpose so if you liked something yesterday more than likely you’ll still like it today – only now it’s on sale. Think dollar cost averaging!
2. Flights to safety. Flows of money work just like the ocean currents and financial markets, they ebb and flow. Ever notice that on a rough day in markets bond prices shoot up or maybe gold and other precious metals are all the sudden more expensive. It’s not because gold supplies suddenly dropped or that financial institutions are offering better fixed rates. It’s because institutions are parking money waiting for the chop in the financial market waters to quell. If you have a balanced portfolio that’s well diversified you are more prepared to weather volatility than the talking-TV-heads give you credit for and a movement to cash would, in most cases, set your goals back quite a bit. Not to mention transaction costs you’d be racking up along the way.  Not to mention transaction costs you’d be racking up along the way. Learning to read the forex trade signal and other exchanges can help you understand the actions of the day.
3. Swearing off the market. This volatility has created some tremendous opportunities. There are still plenty of blue chip stocks out there that are paying great dividends. There are financial instruments that are performing well and now your favorites are all on sale circa 2008 price levels again. Take advantage of this time, fundamentally companies have much healthier balance sheets these days so don’t just pick up your chips and leave the table. That would be the biggest mistake you could make. If anything, do some rebalancing, and try to add some new money while the sale is still going on if you’re the one talking about how you should have bought in at the beginning of the year.

Every one of us gets nervous, scared, and excited. When you are looking at your finance you can’t forget about your plans or strategies.  Put your financial analyst/trader/planner hat on an and look or opportunities to better your current situation.

Comments

[Bentleystallion]

This was a great post! I have been guilty from time to time of pulling the trigger a little prematurely. It's costed me not only in loss but made me really aware of trasaction costs. Keep up the god work!