Mistakes will be made. It’s a normal part of investing. The question is what will you do when you make one and how bad will the outcome be?
Big mistakes are the issue.
An extreme example is you bet all your savings on a single stock — a tip you got from a friend. It has some early success only to tumble 30%. And this is where biases creep in to deter the best decision possible.
You’re maybe too confident things will turn around. Everyone says, “it’s due for a bounce.” All you want is to recover your losses.
So you hold on. Except, it falls further — 50%, then 70%. Finally, you give in and sell at a 90% loss.
With 10% of what you started with, you’re stuck with the incredible task of rebuilding it back up. Of course, blindly following a stock tip or betting it all on a “sure thing” are only two of a countless number of ways to part with your money. Continue Reading…