Undisputable Reasons Why You’ll Fail at Investing

Many investors start investing with a hope of out-sized returns. But in the wake of the recent stock market crash 3 years ago and the economic recovery shaking up, many investors have had that assumption shattered. My job here in this post is to explain to you six possible reasons why you’ll fail at investing. Commit any one of these mistakes, and you have a pretty high chance of getting on the fast-lane to the poorhouse.

You’re looking for easy money.

As much as I hate to admit this, most people spend more time thinking about what TV to buy than they do thinking about how to invest their life savings. Sounds kind of ridiculous, doesn’t it? The truth is, there is no such thing as easy money. Sure there are some people who win the lottery or accidently buy a stock that explodes 6000% in one night. But don’t bank on that. If all you do is buy whatever’s hot without giving that investment some serious thinking, you might make some money on the investment. But I GUARANTEE you that if all your investment decisions are just based on a tip you got from a friend or what Jim Cramer said on Mad Money, then in the long run you’re portfolio’s screwed. You’ve never seen a billionaire investor who spends only 30 minutes a day monitoring his portfolio.

You lack experience.

You could get the best investment advice possible from the best investors in the world, and you probably couldn’t act on that advice. Why? Because you lack the experience. Serious investing is a full time job, just like accounting is a full time job. It’s not meant for people who just watch the stock market or their investments for half an hour a day (I wish it was). George Soros can give you his exact formula (if he has one) for making money off investing, and you still won’t be able to act on it. This is because a big part of investing is what I like to call the “gut feeling.’ Only after so many years of investment experience do you begin to have a sixth sense of what’s going on in the markets. Without experience, you’re missing something very critical.

You’re using the wrong broker.

I define the ‘wrong broker’ as one who a) is too expensive, and b) someone who provides investment advice.

Now let me start off with explaining A. You might not believe this, but many brokers charge a 4% transaction fee, and that’s only one way! So right off the start, you’re down 4%. Then, when you close the transaction, they charge you another 4%! So you’re left with 8% to deal with! This is why I use an online broker, where the fee is just $1 per 100 shares traded (which amounts to virtually nothing). Investing is hard enough already, not to mention the fact that you have to deal with brokerage fees.

Ever gotten a phone call or an email from your broker where he’s giving you advice on which stocks to buy? You should just hang up the phone when you get one of those. The job of a broker is to make money off of commissions; not to care for your financial well-being. The broker wants you to trade often, that way he can generate lots in commissions.

Your emotion controls you, not your rational mind.

In the dawn of 2009…. disaster was iminent. Stocks were falling, unemployment was soaring, and it seemed like the end was near. From a safe distance of 2 years, we can laugh upon those many people who sold out in early 2009. We all know what happened after that. Stocks bottomed in March 2009, the economic recovery began, and there were no longer screaming headlines in the newspapers about the end of the world.

Now hold on a second, and pause for a moment. Why did those people sell out in the beginning of 2009? It’s because in times of sheer panic or bullishness, people let their emotions control them. It’s no longer their rational thinking that drives their investment decisions, instead it becomes a herd mentality. Warren Buffett once said that in times of extreme bullishness, you should be bearish. In times of extreme bearishness, you should be bullish. Sound advice indeed, but very hard. It’s very hard to keep your emotions in check when people all around you are losing their jobs. But follow this advice, and you won’t be prone to the proverbal “following the herd off the cliff.”

A lack of dedication.

I mentioned above that you actually need to learn how to invest (oh, the shocker). Many people respond to that statement and say “no problem!” But do you think learning about investing is easy? Not one bit, or else everyone would be making billions of the financial markets. There are times when it seems like everything you’ve learned doesn’t work. There are times when it seems like you can’t go on. The world of investment knowledge is limitless. But you must go on. No sacrifice, no victory (by the way, this is a quote from Transformers).

You lack an investment model.

By investment model, I don’t mean the computer model that generates buy and sell signals. I mean a mental checklist or a checklist on a piece of paper of what investment strategy is. Here’s mine:

I look only the MOST basic fundamentals.

I look at the most important technical signals such as the 200 day trendline.

I look at the macro economic factors.

I think about what the government wants the markets to do.

A lot of people just look at a really depressed stock and say “hey, this looks like a pretty cheap stock to buy. Let’s buy it.” But how do they know that the stock won’t be even cheaper 3 years down the road? How do they know if the investment is fatally flawed? They don’t, because they don’t put that investment through their personal investment model checklist. A famous investor once said “my investment model works 90% of the time, now all I need is the conviction to stick to it.”

9 thoughts on “Undisputable Reasons Why You’ll Fail at Investing”

  1. Great post. You are right that investing is a full time endeavor and one that requires lots of thought and insight. It helps to develop a good system and pattern of trading that you can use through good and bad markets.

  2. Great tips for investors who don’t want to loss their hard-earned money. In investing, it’s good to study first on where to invest money and when already investing, diversify portfolio and supervise it full-time.

  3. I am looking for consistent returns over time. Most of my portfolio is in mutual funds with smart professional running them. Some are index, but more are professionally managed.

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