1. Failing to allow investments time to grow
Behind every stock is a business. And it takes time for an enterprise to execute its growth plans.
Sometimes, the progress of a company’s share price can be slow. But beneath the surface, operational momentum may be building in the business.
I’ve observed that many successful growth stories have a long-term share price chart that looks like a learning curve. So there’s a long leading tail where the rise seems gentle. And in the past, I’ve sold the stocks of decent, growing businesses too soon — somewhere along that leading tail.
Perhaps I scored a 100% gain and felt pleased with myself. However, it’s possible for successful, growing businesses to grow for many years. And their stocks can enter a period of exponential growth where the price rockets much higher — just like a learning curve.
The effect can be caused by a growing pace of growth in earnings and a valuation rerating of the shares. When a company clicks with growth, the stock market tends to recognise such success and assigns the company a higher valuation. However, that doesn’t always happen.
Nevertheless, failing to allow investments time to grow and selling too soon is one of the worst investor mistakes I’ve made.
2. Getting too close to the markets
It’s wise for me to keep well informed about my investments. But sometimes that can lead to addiction! Checking my portfolio three times a day and watching shares jump up and down can lead to faulty decisions.
My goal is to hold shares while businesses fulfil their potential. And that means adopting a long-term mindset. So sometimes the best course of action is for me to turn off the screens and stop listening to the market news.
The current bear market is a good time for using this tactic. I know the businesses I’m holding are doing well. So it really shouldn’t matter to me if their share prices dip for a while. However, getting too close to the markets now could cause me to panic-sell.
I’ve been there and done that in the past. Never again!
3. Failing to manage a portfolio well
It’s easy for me to become either over-attached or under-attached to my stock positions. However, I need to manage my portfolio to achieve my investment objectives.
Sometimes, that means selling a stock if the underlying business is failing to perform in accordance with my expectations. And it certainly means selling if my investment thesis proves to be wrong. But I must balance that approach with holding on to stocks patiently while underlying operational progress unfolds in a business.
In other words, I need to water the flowers and trim the weeds in my portfolio. But, in the past, I’ve got that the wrong way around and ended up selling winners and adding to losers. That too was a big mistake.