When you were achild, you probably acted like one. But when you're grown, you "putaway childish things," as the old quotation goes. Unfortunately, manyotherwise mature adults still approach investing in a rather immaturemanner - and it costs them.
Let's look at someyouthful behavior traits and how they manifest themselves asunfortunate investment techniques - and how you can avoid theseproblems and develop "grown-up" investment habits.
- Lackof focus - Many children find ithard to concentrate on any one thing for long periods of time. They getexcited about a particular game or activity for a while, and then theymove on to another one. Some investors do essentially the same thing;they follow one investment strategy for a while, then they take sometime off, then they follow a new strategy - the pattern goes on an on.If you want the opportunity to achieve investment success, though, youneed to choose a strategy that works for you and maintain thediscipline to follow through.
- Pursuitof what's "hot" - Children lovethe newest toys. In fact, if they see a playmate that has one of these"hot" items, they will let their parents know, in no uncertain terms,that they, too, would like to acquire this toy - quickly. Sadly, someinvestors also chase after what's grabbing the most attention - in theform of "hot" stocks. This is not a formula for success; by the timeyou buy a "hot" stock, it may already be cooling off. And, in any case,the stock may not even be a good fit for your individual risk toleranceor for your diversified portfolio.
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- Impatience - Patience is not inbig supply among the juvenile set. When children want something, theywant it now, and they are not interested in delayed gratification. Asan investor, though, you really shouldn't expect to get big returns ina short period of time. You're far better off building a portfolio ofhigh-quality investments and holding them for the long term. You mayencounter some ups and downs along the way, but your patience shouldeventually be rewarded.
- Actingemotionally - Children oftenwear their emotions on their sleeves. If they're happy or angry,they'll show it - and they may act on their feelings. For example, ifthey're delighted with a new toy, they may drag it with themcontinuously, never wishing to let it go. Interestingly enough, someadult investors often behave the same way. They may "fall in love" witha stock and never want to sell it, even if it no longer meets theirneeds; conversely, they may get tired of waiting for a stock to pay offand sell it before it has a chance to move up. To be a smart investor,you need to use your head, not your heart.
Putyour experience to work When we grow up, we learn from the mistakes we made in childhood.Investors can change the errors of their ways, too. By drawing on youraccumulating investment experience, you'll find yourself making fewerand fewer miscues - and you'll start making steady progress toward yourimportant goals.