To The Moon

Five Types of Investment Mindsets Should be Carefully Avoided; Nearly 99% of People are Trapped by the Last Type.

Are you trapped in these mindsets or have you ever been trapped in it? Welcome to share your stories with us in the comment area.

1.Pouring too much emotions to the your portfolio

This kind of thinking is often seen but not only limited in some investors of consumer products companies.

The common instance:

“I bought the commodities and services in the this company with great satisfaction, so the company’s stock is bound to go up! “ or "I (my relatives and friends) am working in this company which abounds with harmonious atmosphere, so I am really bullish on the stock”.

Why this kind of mindset should be avoided?

Because when you pour too much emotions on a stock, you will be blind to the shortcomings. What’s more, you will unconsciously focus on positive news instead of negative news, forming behavioral deviation when you scan the relevant news about the stocks, which may lead to your negligence about upcoming crisis or miss the opportunities to stop loss at a downward trend.

To get rid of this thinking mode, you are required to make transversely industrial comparison, carefully analyzing the advantages and disadvantages of the company with competitors as well as compelling yourself to pay attention to negative news about the company to stay alert.

2. Extreme avoidance about the industry/company you have suffered a loss

The common instance:

“the industry has no chance to make a buck”.

Exactly, the investment values from some industries may lad behind other industries in some periods. However, you may miss the clear tendency if you refuse to learn about these domains all the way or just skim it off.

The thinking mode, based on experience, is simple.

Everyone may refuse to admit avoiding mistakes. It’s not wise to give up eating for fear of choking. The first thing to do in stopping loss is confrontation with whole retrospection instead of avoidance from the whole industry.

Investors should think about what’s the reason for falling to make profits. Is there any accidence in investment? Have these accidental factors changed? Refusing potential investment profits in the future because of the past failing investments, may totally eradicate the possibilities of learning experiences from mistakes.

3. Only to buy penny stocks

The common instance:

“ the company stocks with cheap prices may have wide room to go up”.

There are two performances of the cheap stocks; either a low share price, a low valuation, or both.

Although there are wider room to rise for cheaper stocks, investors should be aware that the reasons of cheapness. Especially in markets with open and transparent information, to some extent, the stock price has reflected on the fundamental levels of company.

If you buy low-priced stocks without screening, it is no different from blindly panning for gold in a riverbed. Whether investors can really pick up the treasures depends on their own real efforts and a certain amount of luck.

4. No willing to sell the loss-making stocks

The common instance:

“It will come back to the entry level one day”.

This thinking mode is similar to the first one, featuring rejection and avoidance of failure.

Although many strategists have cautioned investors to buy stocks with patience and not care about the volatility of the process, this is based on the fact that they have exhaustively examined the company's fundamentals, knowing the company well, and have even established stable relationships with the company's manager for years.

As an average investor, if you don't have enough information and just buy stocks on impulse, you need to pay more attention to researching the company when you lose money. Otherwise, what you wait for may not be a rally, but a really delisting.

5. Buying stocks quickly without thinking twice

The common instance:

“ My relatives/friends/investing groups have recommend the stock”. “I bought the stock for its highly frequent advertisement.

Warren Buffett, the God of Stocks, has told us to buy stocks as carefully as we choose partners for marriage; but many people still choose to have “a flash marriage” with stock. It is important to know that “flash marriage”also has the highest rate of “flash divorce”.

Buying in bull market, investors may make sound profits. However, buying in bearish market or a volatile market, they may suffer a great loss.Do these people give up golden chance because of a momentary volatility? Or are they complacent because they made a little money without seeing the downward trend of company?

Charlie Munger(Warren Buffett's deputy), mentioned in Poor Charlie's Almanack that,

“the human tendency to eliminate doubt by making decisions as quickly as possible is obvious ...... People must get themselves used to putting on a mask of 'objectivity' before making decisions”.

To get rid of this mindset, you are required to retrospect yourself with objective perspective--Whether the stock was bought out of impulse.

Have you trapped in these mindsets or have you ever been trapped in it?

Welcome to share your stories with us in the comment area.