Part Two of Common Investment Mistakes: Listening to Outside Advice and Making Emotional Decisions - Conversation

In the second part of our common investment mistakes series, we will be discussing the common mistake of getting too much third-party information.

First, let’s look at common sense. If anyone out there actually had a secret formula to perfect investing, great stock trading tips, or advice, they wouldn’t say a thing about it, and would just make billions. Being good at investing comes down to education, knowledge of the market, and educated guesses. Real investment planning means a lot of time spent sorting through risk assessments and researching stocks. Building an investment plan and sticking to it is a far better way of making money.

Outside advice can only be made less accurate when you include your emotions. People that trade on “instincts” are usually following a general formula, or they’ve just been lucky. The vast majority of those people are the ones no one hears about because they lost considerable parts of their investments to the point that they probably shouldn’t have invested at all. Emotions are what makes life great. They are what love is built on, and all the moments we really remember. But unfortunately, they are not great guides for investing. Emotions are meant to guide our decisions when life and death are in the mix, not when adjusting to market fluctuations. Emotions are often what leads to crashes and other poor market performance, or foolishly buying when a stock is up. Remember, nothing goes up forever, and nothing goes down forever.

Every financial decision you make should be an educated one. Since no one knows the future, we have to accept the risk of investing. But, with statistical metrics and solid wealth management strategies, we can have varying ideas of how stocks will perform and how your finances will grow. When you are looking at an investment, you should be looking for risk ranges, debt-equity ratios, free cash flow numbers, historical analysis of a stock’s performance, and other metrics before you look into more of the business’ structure and projected growth, among other fields of information.

After all of this, if you still don’t know if it’s an investment you should make, you probably shouldn’t make the investment. The same premise goes for selling. A safe strategy is to always hedge your bets and sell or buy in limited amounts that are acceptable to lose on.

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