As an investor, who is your biggest enemy? You. Why? Because you're a sinner. You are too easily led into temptation.
Numerous analyses bear that out – whether you’re talking about individual investors who trade too often or even investors in managed funds who still manage to underperform the funds they invest in, investment self-discipline is your greatest asset, and the lack of it, your greatest risk.
There are seven deadly investment sins, and you have probably committed all of them.
But you're good at heart, aren't you? You want to do the right thing. Now is the time to repent your sinful ways, and become a better investor in the process. Here's what you need to resist.
Emotion clouds the judgement, and few emotions cast more clouds than wrath. When that red mist descends, you lose sight of everything else.
There are plenty of reasons why investors become wrathful. You might have just made your worst investment ever, been through a costly divorce or you’re kicking yourself for ignoring the latest ‘'hot tip'’.
You get angry. To recover your losses, you decide to get more aggressive.
So you do crazy things, like trading currencies, precious metals or CFDs - desperately chasing ten-baggers, or gambling your pot on some high-risk speculative miner.
There is a time and place for aggressive investing, but it needs to be done with a cool head.
Getting greedy costs investors more than any other sin. Greed is what makes people dive into stock market and property bubbles too late. Greed is what makes you ditch a long-term hold with a decent yield for some flighty growth stock. Greed racks up your portfolio costs – fees and taxes – as you lurch between different sectors and stocks.
Greed has been a constant through investment history. It allowed tulip mania to blossom. It blew up the South Sea Bubble. It triggered the technology boom.
To be a sound, long-term Foolish investor, you need to curb this particularly base instinct. Greed isn't good, and you're not Gordon Gekko.
I always thought sloth was one of the lesser sins, and that's the case with investing. The slothful investor has some advantages. They save on brokerage fees and taxes. They avoid making rash judgements, such as buying a growth stock on a whim or selling a recovery stock too soon.
You have to give your portfolio time. Slow investing, I call it. You might call it ''buy to hold''.
But slothful investing isn't so clever if you can't summon the energy to research your investments properly before buying them, or are too lazy to ditch that high-charging, underperforming managed fund.
Sloth or growth. It's your call.
Everybody knows what pride comes before. If you think your run of good fortune is down to your innate genius, if you think you hold the secret to making vast fortunes from ‘'penny shares’', or if you think you can beat the market every year without fail, you are heading for a fall.
The stock market is a tough taskmaster, and it has no time for bigheads. Nobody knows anything, so what makes you so special?
You've just got to have it, haven't you? That exciting gold miner. That trend-setting tech stock. That 10 per cent yield. That fund that just doubled in value.
This isn't Foolish investing. It's just lust.
So what if you know somebody who made a mint on emerging markets? Or struck it lucky in the early days of Fortescue Metals (ASX: FMG)? Or bought gold at $US600 an ounce?
Somebody has to make money out of investing. This time, it wasn't you. Don't be envious. Don't turn green. And don't do anything daft, like trying to follow their strategy, one year too late.
Your turn will come. Be patient.
The stock market is full of tempting treats. Investors are spoilt for choice. A quick run through the market menus throws up juicy high-yielders, exotic oils, shiny metals and, overseas, a tasty Apple.
You can't dig into all of them. You have to choose carefully. Work out which ones suit your investment palate and the businesses you can truly understand. Then focus your efforts on them. Nobody likes a glutton.
Wrath, greed, sloth, pride, lust, envy, gluttony. Any of them could destroy your investment strategy. Now that really would be a sin.
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Harvey Jones is a Motley Fool writer. The Motley Fool's purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691).