Common Investment Mistakes



How Not To Invest


If you aren’t a stonk soldier now then what are you nowadays!? I thought it fitting to cover some common investment pitfalls that we often fall into as novice investors considering this year has been a literal “hold my beer” moment.


Fomo Investing


Now if you’re looking for loss porn, this is the place to be! FOMO investing refers to the fear of missing out on big opportunities in the market (It’s also one of the fastest ways to get rekt in crypto). Considering the penetration of social media in our daily lives, it’s no surprise FOMO has become such a common phenomenon, the funny part about FOMO investing is that it’s often an emotional reaction which pushes you to buy stocks as they become less attractive (you might as well take your advice from Mia Khalifa at this stage). The best way to look at FOMO is to really just accept that it’s going to happen no matter what you do, there are always opportunities in the market, rather focus on what you are doing rather on what you’ve missed out on. Then again, FOMO trading does work in the short-term and if you’re going to jump on a wave, at least manage your risk.


Diworsification


The term Diworsification was coined by the legend himself Peter Lynch and essentially refers to diversification done wrong. Diversification is a risk-management strategy more than anything, it refers to the practice of spreading your investment across assets to reduce your investment risk. Diworsification on the other hand refers to the process of adding assets with a similar risk profile to your investment portfolio to the point that it reduces the overall risk-return characteristics (basically over-diversifying). Diworsification can lead to suboptimal portfolio returns. If you have a SA stock portfolio focused on the property sector, you may want to consider adding exposure to non-related markets in your portfolio like gold and bonds to reduce the risk.


Overlooking The Forest For Trees


Now, this is the one that continuously blows my mind, considering the amount of research out there that proves asset allocation has a bigger influence on the returns of your portfolio than individual stock picking, I can’t help but wonder why there are so many people who choose this path, I mean if the individuals who live and breathe this stuff are failing at it, wena uthembeni? If you’re a bit confused about what the hell I’m going on about, read our blog on asset allocation and see what works for you.


Excessive Trust in Experts


Everyone has bills to pay and politics of the stomach are no joke, perhaps I’m reaching with this one but the investment world has more people ready to take your money than those who are ready to actually grow it, financial media is looking to maximize on subscribers and pump in ad revenue, funds want to manage your money so they can eat on fees, a lot of financial advisors sell products to earn a commission. The point of all this is that all this advice comes from people whose objectives are focused on building their wealth, not yours. The honest truth is that there is no ultimate investment strategy, outcomes are probabilistic, take all advice with a pinch of salt because we are all susceptible to biases, whether consciously or unconsciously. The world of investment has no single truth in the context of there being an ultimate investment strategy.


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Author: Sihle Hlatshwayo


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