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4 Bad Investing Habits That Keep You from Great Returns

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Investing in the stock market has become a common approach to creating massive wealth in the long term. Today, nearly everyone will likely have the opportunity to invest in stocks. What keeps many investors from getting consistent returns over the long term has often more to do with emotional behavior instead of pure intelligence and knowledge.

Chances are that there are also some habits in your thinking about investing in general that are not helping you at all but rather reducing your chances of achieving your financial goals.

So here are four bad investing habits that are very likely to prevent you from great returns.

Thinking That You Can Make Quick Money

Seeing all the traders on Wall Street making huge amounts of money in a matter of seconds may create the impression that investors can consistently make quick and easy money every single month or year. This belief couldn’t be further from the truth when it comes to investing.

When it comes to the stock market, it is important to differentiate between trading and investing. Instead of trading and speculating in the very short term based on technical analysis, investing is rather focused on the long term and good investing requires you to make logical and rational decisions, keeping your emotions under control and to have a good amount of patience.

If you want to consistently achieve good returns over the long-term you need to let go of the belief that stocks can bring you quick and easy money since this is what traders aim to achieve. Real investing may seem to be much less interesting and thrilling than what all the short-term traders are doing but it has proven to be the less stressful and better way of creating massive wealth in the long term for most people.

That being said, there may come occasions where great returns come in short periods of time. However, as a wise investor, you definitely shouldn’t expect and rely on those wins to always happen quickly.

Good to know

  • Even the greatest investors wouldn’t be where they are, from continually getting in and out of the market in short periods of time. Warren Buffett has built his investment portfolio to the huge size of where it’s now by patiently looking for great opportunities in the stock market and sticking to them for a long period of his life.

»Learn more about how to start value investing

“If you aren’t thinking about owning a stock for ten years, don’t even think about owning it for ten minutes.”
Warren Buffett

If you aren’t willing to learning and putting the effort to actively invest, you can always choose to be completely diversified amongst equities and buy the whole market through ETFs or Index FundsThis investing method still requires lots of patience and less irrational thinking and most likely won’t bring you huge returns in the short term. As already mentioned, investing is not about making quick money. Trying to make a quick buck on the stock market is pure speculating and not investing.

Not Viewing Stocks as Businesses

This one is actually pretty simple and easy to understand but many investors still don’t act appropriately even when they know it. Stocks represent proportionate ownership in a company. As soon as you buy any stock from any company, you effectively acquire a small piece of that company, called a share.

Even if that doesn’t give you the right to decide how the business is going to operate, you should still view and treat your stock just like any other business owner. 

If you start viewing stocks that you’re about to acquire as actual businesses, you will effectively lookout for a lot more information and understanding about that business before you actually buy it.

Being a good business owner includes understanding the business operations, its financial health, product line, its operating industry, its competitors, etc. These kinds of crucial information don’t seem to be important to many investors any longer, which can always result in making the wrong decisions at any given time.

So instead of buying certain stocks just as a result of price history or positive recommendations, you should rather start seeking the necessary information that you would also look for when buying a whole business.

Being Too Sensitive to Short Term News

Stock prices can always be heavily influenced by short term occasions and news, which is completely normal and understandable. Most people would probably also become nervous when a company that they own, gets involved in a bad incident and suddenly they hear everybody around starts talking bad about the stock. 

Let’s assume that a business that has stable financial health is suddenly hit by negative reports in the media due to some sort of bad event. Its stock price is likely going to drop since many investors become discouraged to keep being invested in such a business. 

At this point, you as an investor will have to evaluate if the core of the business and its financial fundamentals have now been changed by that incidence to the worse, which would also change the core value of the business, or if the company is just being overwhelmed by a current negative wave from most people that is only temporary and likely to diminish afterward.

These scenarios are going to occur many times. Many major companies have dropped in stock prices, as everyone only talked about the possible downside once some negative event occurred, and shortly after that, stock prices rebounded again after people calmed down, and the things within the business weren’t going too badly as expected. 

Any business may run into a short term problem at any given time, but thinking that you can sell your stock as soon as you hear about that problem and buy back the stock when everything has settled and the problem is over, may logically make sense at first.

However, it is close to impossible to accomplish that in practice. As soon as you hear or read about that incident in the news, it is certain that the stock market has already reacted to it and stock prices have already adjusted.

Trying to Time the Market

Timing the market is the act of switching between financial assets and moving out of financial markets quickly in reaction to economic predictions and technical indicators. This investing method is often used by active traders but definitely shouldn’t do anything with investors that are aiming for consistent long term returns.

It is nearly impossible to properly time the market and to beat it consistently over a long period of time. Even when some money managers claim that they can do it, it is more about luck and randomness than pure logic.

The stock market isn’t rational and you as an investor can never completely rely on technical indicators and predictions. Even economists often fail to predict economic recessions and corrections despite having access to much more data and resources than average investors.

However, what you can do is to position and balance your portfolio accordingly to the current stage of the market. Great investors are not trying to time the market but to position themselves to current economic circumstances and market conditions. Of course, that doesn’t guarantee you to be right, but it certainly does bring you the odds in your favor. Quick market timing is considered for traders and speculators but not for investors.

The Bottom Line

Investing in the stock market can seem quite difficult and confusing from certain viewpoints but the stock market is irrational since stock prices are always determined by investors. Achieving great returns in the long run is only possible if you regularly identify what restraint is really keeping you from making the right decisions.

The four points mentioned above are some of the most frequent habits and thinking patterns that investors might fall into. Generally, it is always beneficial to keep all sorts of emotions out of investment decisions and to start making investment decisions based on logical and rational thoughts.

More to explore

The information on this website is not intended as investment advice. Do not consider the information as individualized financial advice or advocation to buy and sell any finanical securities. 

Investing comes with inherit risks. Therefore, you should always consider seeking investment advice from a professional who is aware of your individual financial situation. You are responsible for your own investment research and decisions.

Keep in mind that we may receive commissions when you click our links and make purchases. However, this does not impact our reviews and comparisons. We try our best to keep things fair and balanced, in order to help you make the best choice for you.

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