When we started Teaminvest, we thought we were making the investing process 10 times easier.
We thought if we could teach people how to identify and buy Wealth Winners and also, under which circumstances to sell them, we could help them achieve wonderful returns.
But we were WRONG.
Some of our clients were getting astounding returns while others were struggling.
When we dug into what was happening, we found that most of our clients were making these 3 mistakes.
When we started our investing careers 30 years ago, we were making these same 3 mistakes:
- Errors of omission
This happens when our instinctive brain fools our logical brain into NOT doing something that we should have considered.
For example, let’s say you own a company that took a massive debt to acquire a foreign business.
You think this is not justified so you decide to sell the company.
But then you hear some hedge funds and brokers upgrading the stock because of the offshore growth prospects.
So you decide to hold it “until the price goes up”.
This is called an error of omission: NOT doing something that you should have done.
- Errors of commission
This happens when our instinctive brain fools our logical brain into doing something in a hurry, that thinking rationally, we wouldn’t have considered.
For example, let’s say you own a stock that has strong moats, good debt to equity, a reasonable P/E ratio and is increasing its sales and profits year after year.
But then you watch the news and see that some hedge funds and several brokers are downgrading it.
So you panic and sell it immediately.
This is the error of commission: Doing something irrational that you wouldn’t have done otherwise.
- Errors of proportionality
For a long time, I spent too much time studying my mistakes so I wouldn’t repeat them.
But I hardly spent any time studying my successes so I could repeat them.
This is how I lost millions of dollars in opportunities.
This is the error of proportionality: giving more importance to the things that matter less.
Once I learnt how to avoid this error, I’m sure I minimised my losses by many thousands of dollars and increased my gains by far, far more.
Next time you want to buy or sell a stock, make sure you are NOT doing it based on the decisions of hedge funds or the whims of the market.
Make sure you place far more emphasis instead, on the things that will make a significant difference to your wealth.
