When you first start investing, you are going to make a lot of errors.
That makes investing exactly the same as learning any other new skill, but with one crucial difference:
Investment mistakes cost you real money.
That’s why you have to make as few as possible, and learn from them as quickly as you can.
You also have to avoid backing your judgement with too much hard cash until you have got the hang of it.
Play Time
For me, the most glaring error first-time investors make is to try to “play” or “time” the stock market.
It is an understandable error for newbie investors to make, given all those get-rich-quick stories about investors who bought an Amazon or Google just at the right time, or sold up moments before the market tanked.
They assume that this is how billionaire investors such as Warren Buffett made their money, but they’re wrong.
Vanity is another factor. Every investor, from beginners to old hands, secretly believes they have some special wisdom that gives them the edge over everybody else.
We all think we are special, unique and beautiful creatures, but we’re not. Investors are flawed beings who regularly make mistakes, especially at first.
Luckily, you don’t have to be a genius to make money from investing. You just need the right strategy.
Bubble Trouble
The truth is that nobody can time the market with consistent accuracy, not even Warren Buffett. Plenty of geniuses predicted the dot.com crash and other bubbles, they just couldn’t tell you exactly when it would happen.
Many people have spent the last six years issuing dire warnings of stock market, property and bond bubbles, and one day they will be proved right.
We just don’t know when yet.
Time Is On Your Side
Instead of trying to time the market, start by doing careful research on companies that you believe have great long-term growth prospects, and aim to buy and hold for the long term.
That’s how Warren Buffett got rich.
If the company pays a handsome dividend that you can re-invest for growth, even better.
And if it has just fallen in value, treat that as a bonus. Taking advantage of recent market movements is fine. Thinking you know where the market will go next is daft.
Another problem with trying to time the market is that it is a gateway to other mistakes, such as trading too frequently (and racking up unnecessary charges) and selling your winners too soon.
By eliminating this first mistake, you can rule out many others as well.