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Investors have a number of weaknesses which
often result in investment failure. Identifying these weaknesses is the first
step to reducing them. Our Investment Scoring and Timing System is designed to help minimize these weaknesses in order to
give us a potential advantage over the market. The following are some key
reasons why we believe investors lose money.
1) Emotions
Money is important to our
survival, social status and way of life and therefore dealing with finances
is an emotional subject. As a result emotions tend to have exceptionally
negative consequences on our investment decision making. When our investments
are doing well, we tend to add to our positions or hold on to our investments
too long. Alternatively, when our investments are doing poorly we tend to
sell our positions in fear of losing money. This response is not conducive to
making a successful investment. Emotional investment decisions tend to cause
the investor to "buy high" and "sell low". Obviously this
is not the best strategy.
As a group, people tend
to make terrible investors. People often have a desire to be accepted among their
peers and frequently seek comfort and approval from others. They like to
share common thoughts and theories at social events. For instance, people
find it agreeable to discuss popular topics such as a "hot"
real-estate market. In the peak of a bull market it is fun and easy for
everyone to get along and agree on the current "hot" market.
However, few investors buy when a market is unpopular and not doing well, but
history suggests these are usually the ones who succeed with their investment
strategies. These are the investors who see value in unpopular investments
and buy when they are "on sale". Often these individuals are
dismissed as being "uninformed" because they disregard the latest
perceived, "can't lose," "hot" investment. In reality we
can not all make money. Someone must lose if others are to gain. History
repeatedly demonstrates that it is the popular group belief that generally
takes the loss.
2) Discipline
Some investors may
realize the pitfalls of emotional investment decisions but because they lack
an investment strategy they still fall victim to the same problems. It is
hard to resist the temptation to hold onto a winning investment. People
gamble and want to hold onto that investment a little longer than advisable.
Contrarily, if an investor has experienced previous losses, it is hard to
resist selling an investment to lock in the profits. However when they do,
people are often disappointed with the trivial gain when that same investment
continues to increase in value many times over. Discipline is an
exceptionally difficult trait to master. Methodically approaching your
investment strategy with a predetermined plan and system makes disciplined
investing easier.
3) Ignorance
People are taught
throughout their lives the importance of studying hard in order to get a good
job so that they will earn a good pay. Unfortunately they are not taught what
to do with the money after it has been earned. It is our opinion that a small
percentage of the population benefits from this ignorance. As shown in the
past, a massive transfer of wealth from the general population to a select
few regularly occurs.
Also, people tend to
naively believe they will outperform the market with little to no strategy.
Even worse, investors commonly implement widely accepted yet faulty
strategies that greatly reduce their probability of success. Understanding
basic rules and having a predetermined system helps investors remain focused
and be on the right side of the trade.
4) Misinformation
Networks and various
media often discuss current financial trends. In our opinion the
"hype" of the media calling this move or that move is merely
speculative "noise" and generally irrelevant. These short term
explanations make us question our investments, sell out early, buy late and
generally create an unwanted emotional response. This "noise" and
potential misinformation causes us to lose focus of the "big
picture" and major trend. We believe it is this "noise" that
stands between success and failure as an investor. We use Our Charts
to help illustrate the market trend and bypass this emotional noise.
Investors at all levels struggle with the
common problems listed above. Knowing natural weaknesses can only make an
investor stronger and Our System helps keep us focused on buying low
and selling high.
Michael Kilbach
Editor
Investmentscore.com
Michel Kilbach is the President and Editor or www.investmentscore.com,
an online publication designed to show investors how to make profitable entry
and exit trading decisions in high growth potential investments. Investmentscore uses a unique scoring system as a visual
guide to assist investors in making lower risk / higher reward trades.
Copyright © 2006-2007 Michael
Kilbach
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