All the seven deadly sins are man’s true nature. To be greedy. To be hateful. To have lust. Of course, you have to control them, but if you’re made to feel guilty for being human, then you’re going to be trapped in a never-ending sin-and-repent cycle that you can’t escape from.
-Marilyn Manson
The single most important risk to a portfolio of investments is a poorly defined or constantly changing strategy. You must have a long-term approach to which you adhere over time regardless of the current favor of the particular strategy. You will need to resist the psychological pressures of investing.
(I said resist, not sleep through it!)
Avoid These :
Gluttony – hoarding cash when you should invest or evaluating by only one category when you should look at the big picture;
Greed – looking for big winnings when time and patience pay off;
Pride – not selling your losers or those old, familiar holdings when a new idea is better;
Lust – listening to the information barrage and adjusting your portfolio constantly rather than filtering it out to stick with a plan;
Envy – chasing fads or looking at a friend who has “winners”, making investing look more like gambling, when actually you should sell your best and buy trailing but good positions (as in the “Dogs of the Dow” technique);
Anger – not forgiving yourself for mistakes and moving on; and
Sloth (not our friend up above) – changing beliefs to fit your decisions or portfolio rather than reviewing a portfolio intellectually and objectively to decide if you would still buy the holdings today.
You should review your portfolio about once a year. Any more than that and you’re falling victim to one of the aforementioned sins. When reviewing you should re-balance – taking from investments that did well and adding to investments that did not perform as well since the last re-balancing. This reallocating may seem wrong, especially when bond yields are low and CD rates are low. Nonetheless, history tells us to override the psychological urge to keep investing in a “winner.”
Individual investors are a “negative indicator” because they buy when an investment is near its peak and sell when it is near its bottom, exactly the opposite of buy low, sell high. So you want to take “profits” from those currently doing well, and re-deploy them with assets that are more likely to provide future returns.
Adhering to a sensible investment strategy is how money is made over time.
You may feel that you missed out compared to someone who is all in the right stocks now. However, you will also be glad to miss out when that person’s holdings go down faster than the market.