1. #1

    Join Date
    Aug 2011
    Lahore, Pakistan
    Blog Entries

    Enemies of Investors - General Analysis

    If you are an investor, you need to be watchful as you may turn out to be your own enemy. Watch out for the following which can actually be your enemies while making investments:

    Lack of patience: There has been one thing common across all investors and that is without doubt patience. In investments, more than skill patience counts as over a period of time variable return products like stocks provide healthy and above average return.What is also great about patience is that it is free of cost, difficult to find trait among investors.

    One of the greatest investors of our times Warren Buffet once remarked ,

    “I buy on the assumption that they could close the market the next day and not reopen it for five years”.
    It is not just equity market in which patience counts, investments in debt market also required patience. For power of compounding to work it is important that an investor has the required patience. But unfortunately most of the investors are not able to wait and end up liquidating investments well before required time.

    Greed: Greed is an enemy which has destroyed wealth like nothing else. Nothing explains this better than the fact that people often tend to maximum returns without understanding that risk and return go hand in glove. So an investment scheme providing very high rate of return catches attention of investors and they just forget that there may be very high risk in these investments.

    Investors get attracted to many fraudulent schemes only because of greed. Various multi-level marketing schemes have flourished because they could sense that investors are greedy and will go for these schemes. Penny stocks attract investments only because of greed.

    Over-confidence: I can never go wrong and hence whatever I decide to invest in bound to be the best. Over-confidence also closes the horizon of the investors. They tend to ignore relevant information and advice in many cases. Psychologists have determined that overconfidence causes people to overestimate their knowledge, underestimate risks, and exaggerate their ability to control events.

    Things work differently in real life. Understanding investments and timing it perfectly is not a child’s play. But many people exhibit that over-confidence.

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