Yes, a lack of discipline and confidence. I'd say DDRRISK pretty much nailed it. But I would add one more factor: an inability to admit our mistakes. This is a crucial error to avoid.
Let's say a hypothetical investor's faulty investment analysis puts him in a stock X exactly at its peak, say at 28, and then the stock promptly drops to around 20 where it stays, while the markets roar ahead in one of the biggest bull rallies ever. Here is where our hypothetical investor compounds his error. Instead of freeing up his dead money to put it in one of the hundreds of stocks that is about to gain 30% to 50%, he stays with his loser, because to sell would be to admit he made a mistake.
So he misses out on a huge rally when he could have participated, and then bought stock X back at more or less the same price at which he would have cut his losses, once stock X looks like it is about to perform again.
The moral of the story is that at any given moment, you have to like each stock so much that you would buy more today, if you had more money to invest, or if you did not already have too much exposure to that stock.
This is a hard lesson to learn, however, because it is very hard for us to admit that we have made mistakes.
Happy Investing!
Vanni |
