Investing mistakes learned from crisis ~ forex autopilot trading robot download
A lot of time has passed since the 2008 crisis and now we can look back to the period and summarize what mistakes investors did and what lesson have to learn those who want to invest in the nearest future. What have we learned and what mistakes we should not want to repeat anymore?
If you read books on investing written decades ago you will see that people of the past made the very same mistakes that we do today. Markets do change somewhat, but the mistakes that are made are always the same. And they are being made by both private investors and corporate investment fund managers. We do give in to crowd mentality, emotions, fail to assess risk and recklessly invest with borrowed resources. Even the best trading strategy can fail us if we do not learn to reverse the above mentioned things.
Some of the best principles such as: “buy and hold” may not be working anymore. Especially if one is ‘smart enough’ to buy at the top. Following this principle can destroy all of your capital and leave you disappointed with investing.
So, let us look at those fundamental things we have to know while investing our money in financial markets.
History repeats itself
People tend to forget history. There are things that will always repeat. Stocks will go up and they will go down. They will be uptrends and downtrends. Markets will experience booms and collapses. It is only natural that after a long ride upwards you will surely have to experience a similar ride downwards. Go back hundreds of years ago and you will see that the bigger the move upward you have the bigger the correction or the move downwards. The bigger the inertia, the more severe the reversal will be when it finally occurs.
I remember talking to one of my relatives just at the time the first signs of 2008 crisis started to appear. As I studied market booms and collapses for a long time I told him this one will be pretty dramatic and we are going to see very serious troubles. He would not listen. He said there will be a minor correction in economy and then it will continue growing, salaries rising and prices growing. He sounded as if we will have a never ending boom. We know what happened.
And it will happen. Bubbles will always be. So will crises! My relative had a triple cut of his salary. Then he lost his job. With a loan on a house and two new cars it was a pretty severe blow. His wife had to do double work. Parents helped. After many months he got another job and managed to sail through the troubles. His thinking changed though.
Remember, history will always repeat itself. It may do it in a bit different way, but it will. So, if you see a boom you can be sure that you will also see a collapse. People forget all crises. They forget that there are cycles everywhere. And they continue being bullish for too long. They continue being bearish for too long too. Be ready for repetitions!
Imagine the worst scenario
We often do the other way round. We tend to imagine the best as the only possible way. We tend to think only about how much profit we can make and how many opportunities we can miss. This often leads to borrowing truckloads of money at unfavorable interest rates and rash purchases of assets or securities that we believe should rise soon and make us millions in profits. If we risk a lot we may find ourselves in a situation when we lose everything and in some cases we may not be able to repay what we owe (bank or somebody else) in a lifetime.
I recently visited an acquaintance of mine who used to be a director in a construction company. He would get there a good salary and have some smaller businesses of his own. Somehow in the middle of the boom he started purchasing land. He got into deep debt. When markets collapsed he lost his house, cars and he still owes to the banks truckloads of money. His wife travels to work in London in order for the family to survive. Had he thought not only about possible opportunities, but losses he would have never had to live the way he lives right now.
Ask yourself what happens if the market goes against you. How much are you willing and ready to lose? This will help to balance your expectations. Do not be driven either by greed, or by fear. Let your mind and analytical skills guide you in making investment decisions.
Emotions or a sound plan
Mistakes that are emotionally grounded are bountiful. Investors constantly break the soundest investing principles just because they are ruled by their emotions. Multitudes of investors made psychological mistakes during the last crisis. They bought at the top and sold at the bottom. They jumped from one investment fund to another. They sold risky stocks at the bottom and bought conservative stocks. It is clear that you cannot go far with this type of behavior.
Fund managers give statistics showing that most investors were willing to sell their securities at the time when market actually found its’ bottom. It also confirms that those securities were bought when markets peaked, just year or half before the collapse. What a smart way to trade!
Mostly sell offs started when “Lehman Brothers” bankruptcy was announced. It is ok, when a speculator behaves in such a way. It is not good when a person who saves up for his/her retirement does so. I have a few friends who bought houses and flats at the time when markets peak. They did this with borrowed money, of course. Now they tell me how lucky I am for not doing that. I would not say I was lucky. I have been studying markets and various technical as well as psychological patterns for years and my findings discouraged me from buying real estate at such prices. Ya, I was lucky.
One sometimes has to wait patiently through such periods, because market cannot stay too long irrational. Sanity does come back. Many wake up to unpleasant reality. Inertia can last for some time, so can irrationality, but sanity does come back and stays in the markets. Wait for bottoming processes to start buying and topping processes to start selling. Not vice versa!
Do not try to recoup losses
This is another mistake that 99 percent of traders make. When a trader loses ten or twenty percent of his capital he naturally tries to recoup the experienced losses. This, in 99 cases out of 100 leads to even bigger losses. When markets start going down they would prefer to close their long term positions and start searching for fast profits. They work hard to figure out how to win back what they had lost. And they lose more and more till they stop this futile occupation.
You cannot expect to quickly recoup your losses. It will take some time to find good securities and more time for those securities to start rising. Patience is a remedy for this disease of ‘trying to recoup losses’. More info for Investing mistakes learned from crisis ~ forex autopilot trading robot download:
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