Why You Suck at Investing.
Updated: Sep 22, 2020
If you suck at investing it's okay, we've all been bad at something. But do you know why you suck or why you're not getting the returns you desire? We've outlined seven reasons why you probably suck at investing in hopes that it will help you turn your investing around. The first step in fixing an issue is recognizing that there is an issue. So if you're reading this you are on the right path. Here are seven reasons why you suck at investing.
1. You're Not a Believer
You've heard the stock market has the potential to make people money, but you're not sure. Also, you don't know anyone personally that has made a ton of money in the markets. The people that you see on TV who have made a ton of money in the markets appear to be smarter than the average Joe or Jane. Because of these issues you dabble here and there, you put some money in and take some money out, but never really committing. This is a reason many people suck at investing.
If you look at this chart of the S&P 500 since 1980 you'll notice it's gone up a lot since 1980. The market has experienced several dips and down cycles but overall the S&P 500 has gone up over the long term.
To not suck at investing you have to believe that over the long term the markets will continue to go up, and that if you feed the markets with your dollars, the markets will add profits to your dollars over the long term.
When you become a believer your attitude changes, you stop throwing some money into a stock here and there, and you start funding your investment account aggressively, because you know what could happen over the long term. To not suck, you've got to believe.
2. You Don't Know if You Want to Trade or Invest
You may suck because you don't know what you want to do and you don't know how to do what you want to do. The general consensus of all market participants from very green to very experienced is they want to make money in the markets. But what experience investors have over the novice investor is they know how they want to make their money in the markets.
Too many people who suck at investing aren't investing, they're trading, and they are bad at it. They're in a stock today, it's down a point or two, they're selling out of it and trying to jump on the next stock they hear about that is moving. In and out, out and in, with no real gains on their money.
The quick in and out style of investing is trading, and trading is difficult. No matter how many millionaire traders you see on Twitter and YouTube you need to understand they didn't get there by trading off of an app; and they have sophisticated systems they use to trade. They've also spent years working on their craft. That also applies to people like Warren Buffett and Carl Ichan; they don't trade, but they've spent years understanding how to invest and make winning investments.
In order to not suck, you need to figure out if you want to trade (hold stocks for short periods of time to take advantage of market momentum) or if you want to invest (buy companies and hold them for a long period of time in hopes that their values increase). Once you choose one, you can then work on not sucking at it.
3. You Don't Have an Investment Plan.
If you fail to plan, you plan to fail. This rings true in investing as well. Before you enter the markets you should have a plan. To create a good plan you need to decide why you are investing. Are you investing for retirement, or to purchase a house in the future, or to get super rich, or for future education expenses? Think about what you're attempting to get out of the markets and what your risk parameters are. Decide if you are going to invest for income, safety, or growth. Having an investment plan will keep you focused and it will prevent you from putting your money into the latest investment trend or hot stock tip. If you want to not suck at investing you need to create an investment plan.
4. You're Selling When You Should Be Buying
This seems obvious, because if you were doing the opposite you wouldn't suck at investing. Knowing when to purchase a stock is more art than science but here are some things you shouldn't do. You shouldn't purchase stocks immediately after hearing the stock has made a big move over a period of time.
CNBC, Bloomberg, and the other financial networks report the sizzle. When they report that a company like Lululemon for example has increased 50% over the past four months, that is not a signal to buy Lululemon's stock. For professional investors, when a stock makes a big move and gets media coverage, the party is over. That is when professional investors unload their profitable positions to people who want to get in after hearing about the big move.
5. Your Investment Decisions are Influenced by Bad or Incomplete Information
Stock tips and investment news should not be you're lone reasons for buying a stock. First lets discuss stock tips. When you get a stock tip, you should question the source of the information. Is you're software engineer friend telling you about a drug that is going to change the medical industry? How would he know? What qualifications does your friend have to know what is going to change the medical industry?
To cure the problem of making investment decisions based on bad or incomplete information go back to #3, get a plan. A plan will keep you from making rash decisions. Also a good investment plan will have criteria that must be met before investing. If a stock is up big, down big, or sideways, before you buy it you will review your plan to see if it warrants further examination.
If you want to stop sucking at investing, stop making investment decisions based on bad or incomplete information.
6. You're too Diversified
When I started investing I was told diversification is the key to success. I've come to realize that was some of the worst investing advice I'd ever received. Diversification, when you don't know what you're doing seems like the way to go. But if you have a general sense of how to invest why spread you're eggs over 20 shaky basket, when you've got a good idea what the three or four solid baskets are?
If you're an NFL fan or an NBA fan, and if you're completely honest with yourself and you get over your hometown team bias, you know that there are 5 to 6 teams that have a realistic chance of winning the Super Bowl or the NBA Finals. If you had to place a bet on who would make the Super Bowl, would you spread your bet over the 31 teams in the NFL or place it on the 5 to 6 teams who have a realistic shot?
If you want to stop sucking at investing, stop buying a share or two of 50 different companies and put your eggs in fewer baskets.
7. You’re Not Patient Enough
Warren Buffett says that if you're not willing to own a stock for 10 years, do not even think about owning it for 10 minutes. Buffett couldn't be more right, and it's advice that new investors or investors that suck at investing should take to heart.
Buying a stock today, only to sell it next week on the first sign of bad news is bad investing. Stocks are going to go up and down, just as we pointed out in bullet #1 when we looked at the S&P 500. What you should be investing for is the long term advantages that being an owner of a company provides, because that's what you are as a stockholder, you are part owner of a company.
If you did thorough research of your neighborhood and the businesses in your neighborhood and decided to buy a dry cleaning business, would you sell it if things weren't as rosy as you had hoped after a month or two, probably not. So why would you sell a stock after a week or two or a month or two?
I'll admit that I've never owned a stock for 10 years, but I've held a stock through a 40% decrease in price, and I was handsomely rewarded for my patience. In my case the stock dropped 40% over a course of several months because the short-term outlook of the industry had changed and the overall markets were going down. Ultimately the long-term fundamentals were still in place (there is that phrase again "long-term"), and that is why I held on to the stock and purchased more when I could.
You may never hold onto a stock for 10 years, but don't sell stocks after 10 days of ownership because it's down or under performing your 10 day expectation. Think long-term, be patient.
How Not to Suck at Investing
These are the reasons that you likely suck at investing. If you don't want to suck at investing, reread this, let it sink in, and do the following. Be a believer, the stock market is a great tool for people looking to turn a little bit of money into a lot of money, and if you believe this to be true it will work for you. Peg down your intention, are you trading or investing, which ever you decide, stick to it and work at understanding how to not suck at it. Next, get an investment plan, there are tons of resources online on how to create your own investment plan, it's not a complicated process. When others are worried and selling you should be buying, when others are overly optimistic and buying you should be selling. Use good information to make your investment decisions. Investing works like everything else in life, bad info in, bad results out, seek out good information and question investment tips. Stop being overly diversified and concentrate your portfolio on a few good investments. Lastly be patient, patience is a big part to not sucking at investing.
If you follow these steps I can't promise you that you'll be the next Warren Buffett, but you won't suck as much as you do at investing.