The Seven Deadly Investment Sins

The Seven Deadly Investment Sins

(Taken from The Winning Investment Habits of Warren Buffett & George Soros by Mark Tier)

Deadly Investment Sin #1 : Believing that you have to predict the market’s next move to make big returns. Reality : Highly successful investors are no better at predicting the market’s next move than you or I.

Deadly Investment Sin #2 : The ‘Guru’ belief : If I can’t predict the market, there’s someone somewhere who can – and all I need to do is find him. Reality : If you could really predict the future, would you shout about it from the rooftops? Or would you keep your mouth shut, open a brokerage account and make a pile of money?

Deadly Investment Sin #3 : Believing that ‘Inside Information’ is the way to make really big money. Reality : Warren Buffett is the world’s richest investor. His favorite source of investment ‘tips’ is usually free for the asking : company annual reports.

Deadly Investment Sin #4 : Diversifying. Reality : Warren Buffett’s amazing track record comes from identifying half-a-dozen great companies – and then taking huge positions in only those companies.

Deadly Investment Sin #5 : Believing that you have to take big risks to make big profits. Reality : Like entrepreneurs, successful investors are highly risk-averse and do everything they can to avoid risk and minimize loss.

Deadly Investment Sin #6 : The ‘System’ belief : Somebody, somewhere has developed a system – some arcane refinement of technical analysis, fundamental analysis, computerized trading, Gann triangles, or even astrology – that will guarantee investment profits. Reality : This is a corollary of the ‘Guru’ belief – if an investor can just get his hands on a guru’s system, he’ll be able to make as much money as the guru says he does. The widespread susceptibility to this Sin is why people selling commodity trading systems can make good money.

Deadly Investment Sin #7 : Believing that you know what the future will bring – and being certain that the market must ‘inevitably’ prove you right. Reality : This belief is a regular feature of investment manias. Virtually everyone agreed with Irving Fisher when he proclaimed : “Stocks have reached a new, permanently high plateau” … just a few weeks before the stock market crash of 1929. When gold was soaring in the 1970s it was easy to believe that hyperinflation was inevitable. With the prices of Yahoo, Amazon.com, eBay, and hundreds of ‘dot-bombs’ rising almost everyday, it was hard to argue with the Wall Street mantra of the 1990s that ‘Profits don’t matter’.