“To err is human” said the poet Alexander Pope; however, in investment, errors can be expensive. Sometimes, it’s only hindsight that helps us realise where we went wrong – so what are the most obvious hazards?
Investors face many potential pitfalls, but one of the most common is to follow the herd, rather than using your head. When markets are rising, investors rush to get involved, fearing that they are going to miss out. However, when markets subsequently fall, many investors get cold feet and liquidate their holdings, crystallising their losses and often missing out on a subsequent rally when share prices return to more normal levels.
The lesson here? Whether you’re buying or selling, don’t get carried away. Sensational headlines about plunging share prices naturally make investors nervous; however, market volatility is part of equity investment. Share prices go down as well as up – if you don’t think you can tolerate the falls along with the rises, you should probably reconsider whether equities are suitable for you.
Investors often attempt to “time” the market by trying to predict future movements in share prices. Ultimately, they want to buy when share prices are low, and sell when they are high. However, even the most seasoned experts agree that successful market timing is almost impossible, owing more to luck than to judgement. Instead of trying to beat the market, focus on constructing a long-term investment strategy that suits your own personal circumstances.