If you want to be a better investor, you have to know how your mind works. Not everyone thinks the same way about investing, and if you don't know your own particular quirks -- and weaknesses -- then it'll show in your results.
In particular, think about some of your not-so-wonderful investing habits. Even if they don't come to mind right away, odds are that you'll find a whole host of examples if you dig out some of your old brokerage statements and review some of your bone-headed investments. Try to figure out what led you to make those mistakes. Here are some possibilities:
- Do you get swayed by an exciting detail or two? For instance, both Google
(NASDAQ:GOOG)and Intuitive Surgical (NASDAQ:ISRG)have had amazing revenue growth in recent years, with average annual rates of 72% and 57%, respectively. But don't invest without filling out the picture much more. There's simply no way those growth rates are sustainable in the long run. In the current recession, demand for Intuitive's expensive robotic surgery equipment has slowed. Even companies that enter a slower-growth phase can make profitable investments, though, as Wal-Mart (NYSE:WMT)shareholders can attest.
- Do you get too impatient? Did you maybe invest in Diamond Offshore
(NYSE:DO)or Adobe Systems (NASDAQ:ADBE)a year ago, based partly on their robust margins, revenue growth, and return on equity? Are you thinking of selling them just because they're down over 30% in the past year? Well, next time you look at them and your trigger finger starts itching, be patient -- that's a key trait of great investors. As long as you remain confident of their strength and promise, holding can be the best thing to do.
- Conversely, are you sometimes pigheaded? If you're holding on to companies just because they're down, even though you've lost faith in them, that's not such a good idea. Maybe, for example, you lost money on Capital One Financial
(NYSE:COF)or Bank of America (NYSE:BAC), and are worried about new regulations in the credit card industry and the chance of increased loan defaults in the recession. If so, at least think about moving your money into a company you feel more confident about.
- Do you focus much more on a stock's positives than its negatives? Are you eager to buy a stock after hearing someone on TV rave about it, without looking into his track record or the stock itself? If those traits haven't gotten you in trouble already, they certainly will in the future.
Discover your unproductive tendencies, so that you can notice and avoid them when they rear their ugly heads. Your portfolio might thank you for it.