Ever hear the saying “hindsight is 20 20″? Its gets used across all aspects of life and especially in the investment world. People have a tendency to simplify the gains to be made from investing after the fact. After a 40% drop in stock value everyone can sit there and say it was obvious that the market was heading towards this kind of correction. This kind of hindsight will always get novice investors so be careful if you find yourself saying the following:
- If I would have sold sooner I wouldn’t be down so much - If you find yourself saying this then most likely you’ll be timid and anxious in future investments. You’ll be prone to jumping out of stocks at the first sign of trouble and missing the eventual rebound.
- If I hadn’t sold I would have made even more money – Prior to making any investment you should understand what your goals are and have a plan. If you find yourself saying this it may distract you from your plan and keep you from exiting when you should. This leads to impulsive investment decisions.
- If I would have bought that stock last month I would have made a ton of money – Watching stocks rise quickly is always hard especially when you are sitting on cash. If you find yourself saying this you could eventually be leaping into a rising stock before its set to come crashing to earth again. You just need accept that you’ve missed the opportunity and keep your composure.
- If I had more money I would have made made even more - You’ve made some money investing and now you are feeling good. You begin to think of all the lost opportunity had to invested more. You get over confident and decide you’ll buy on leverage or margin in order to amplify your returns. However at this point you’ve taken on far too much risk and sooner or later you’ll misstep and lose everything and owe a lot.
Conclusion
Never look to the past when investing for the future. Understand (see my article on my rule #1 to investing) what you expect from a particular investment (this should include more then just the future stock price) and the consequences involved that way you can probably deal with all the risks involved. Once you’ve done that act with conviction, stick to your plan and never look back.
Do you have any personal stories of how hindsight caused you to make bad investment decisions?
-mfd-
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