Our biggest regret from last year is that we didn’t invest in Bitcoin when it was US$40, before it soared to US$1,200.
Our biggest relief this year is that we didn’t invest in Bitcoin when it was US$1,200, before it crashed to US$100…and before the world’s biggest Bitcoin exchange – Mt Gox – got into what appears to be financial as well as technical strife.
But we could have invested at the top. And maybe we would have if we didn’t have a disciplined approach to investing.
You need that discipline, because sometimes the thrill of investing can make you do crazy things.
Here’s how to prevent that happening…
In the nearly 20 years since we first got into the markets, we’ve seen it all. We’ve seen and dealt with almost every type of investor.
But what we’ve noticed is that certain undisciplined investors tend to fall into five distinct types. We’ve tried to categorise them in today’s Money Morning.
We don’t do this to ridicule them or make fun of them. We do it because there’s something you can learn from this. Perhaps you’ll even recognise yourself in some of these types.
If so, hopefully it will give you a jolt and help you become a better and more disciplined investor…
They’ll get the software and then conduct one of the most basic scans. That usually involves getting the software to churn out all the stocks that have risen X% that day, or which have seen unusually high volumes that day (volume spike).
This strategy may work if you’re lucky. But odds are if you try to chase a stock price higher you’re more likely to end up chasing it lower as you and a thousand other investors scramble to exit.
But suddenly, when the company’s share price takes off they become an expert overnight. They now believe it’s the greatest company in the world. Not because they know anything about it, but because the share price is going up.
This type of investor will always be chasing their tail. They’re lazy. Rather than putting in a small amount of effort to research or read about a particular stock, this type of investor only ever invests in yesterday’s stories rather than today’s or tomorrow’s opportunities.
They worry that if they don’t buy into this one stock right now then they’ll never have an opportunity ever again. It’s as though it’s their only chance ever to buy a stock that’s going up.
Of course, that’s not true. The Aussie stock market for has nearly 2,000 listed companies. On any given day there are hundreds of stocks that fall in price and hundreds of others that rise in price.
If you start thinking to yourself that you’ll never have an opportunity to invest in a particular stock again, then it’s probably a good time to turn off your computer and go for a walk. We can assure you that you will have another opportunity, if not with that stock then with another stock.
This is the investor who may do a little or a lot of research about a stock. He or she likes the stock. So at 10am as the market opens they sit at the computer waiting to buy…and they wait…and wait…and wait.
They’re waiting because as the stock ticks higher, they’re convinced it will fall one cent so they can buy it at a cheaper price. Only, when it falls by that one cent they’re convinced it will fall another cent…only it ticks higher, then lower, and so on throughout the day.
There’s a good chance that by the end of the day they still haven’t bought the stock. So they go through the same song and dance the following day…and never end up investing a dollar.
You may have done this. You may have done a whole lot of research on a stock, but for whatever reason decided not to buy it. Then it turns out the stock doubled or tripled in price.
You wish you had bought it. And so, what does this investor do? That’s right, they jump in. In some cases the investor can get lucky. But in many cases the investment turns sour. It turns into the classic case of ‘buying high and selling low’.
You’ll rarely get any joy by regretting past decisions and then trying to make up for them in the future. Remember, when there are nearly 2,000 stocks on the ASX, you’re more likely better off looking for something new rather than trying to make up for something you missed.
The bottom line is this: there are plenty of opportunities to make money from stocks. As we’ve noted this week, we’re backing the Aussie market to almost triple over the next four to five years.
If we’re right that will present many opportunities for you to back winning stocks.
So if you miss one opportunity, don’t panic. Don’t fall into one of the traps we’ve highlighted above. There’s rarely anything to gain from making a rash investing decision. More likely than not you’ll only regret it.
Cheers,
Kris+
PS: You can quiz me on my bullish stock market views in person at the upcoming World War D conference in Melbourne at the end of next month. I’ll be on the stage with global finance gurus Dr Marc Faber, Jim Rickards, and Satyajit Das. You can find out more here about what I consider to be the best money and finance conference in Australia this year. Click here for the revealing trailer…
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