Avoiding these investment mistakes is half the battle

The key to investing well may not be about finding big winners, but about cutting out avoidable errors. JOACHIM KLEMENT uses the analogy of amateur tennis: success comes not from brilliance, but from making fewer mistakes.

For most investors, poor outcomes are often tied to short-term thinking. Reacting to market noise, frequently checking your portfolio, or chasing performance all increase the chances of costly decisions and unnecessary trades.

Having a trusted adviser can also make a significant difference. Not by picking stocks, but by keeping your behaviour in check, especially during market extremes.

1. Avoid short-term reactions

Panic-selling or taking profits too soon leads to higher costs and poor timing. Staying invested is often the better choice.

2. Check your portfolio less often

Frequent monitoring increases the temptation to act on noise. Long-term results come from discipline, not constant tweaks.

3. Use an adviser to manage your emotions

A good adviser helps prevent emotional decisions and keeps you on track when it is hardest to stay calm.

RELATED CONTENT 

https://www.evidenceinvestor.com/post/three-big-investing-mistakes-to-avoid 

https://www.evidenceinvestor.com/post/why-investors-repeat-the-same-mistakes 

https://www.evidenceinvestor.com/post/investors-tend-to-forget-their-mistakes 

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TRANSCRIPT

Robin Powell: Investors would achieve better outcomes if they simply focused on avoiding mistakes.

That’s the view of investment analyst Joachim Klement, who has written a book on the mistakes investors make.

A helpful analogy, he says, is the game of tennis.

Joachim Klement: If you go to top class tennis, you watch Roger Federer and Rafael Nadal play with each other. 

The better men win in the sense the better men. Who has more winners in the tennis match? 

However, if amateurs like us and if the broad audience plays tennis, it's not necessarily who has the best winners and the best serve and the best return who wins the match. But the one who makes less mistakes. 

And the same thing is true for investing.

If you go to the absolute elite level of hedge fund managers and top fund managers, it is about finding the best stocks, picking the winners. 

But for most of us, actually, we can improve our performance much more if we just avoid the worst mistakes that cost us a lot of money. 

RP: So what’s the biggest mistake of all?

For Joachim Klement, it’s having a short-term focus.

JK: We all have a tendency to look at the markets all the time, to look at our investments and, then follow the news more and more closely. And that tempts us to react to short term developments.

If the stock is, for example, down by a couple of percentage points, because of some news item, whether it's an economic effect or something the company has done. 

We tend to get panicked, sell it, and then buy something else, or we are maybe lucky with some investments, want to cash in with a 10% gain and then buy something else? 

Well, the problem with both of these things is that on the one hand, it increases trading costs because you have to pay commission. Even in our 21st century world, these commissions are very low. 

They still add up. But also, we tend to actually sell the wrong stocks at the wrong time, namely, take profits too soon and don't let our winners run. 

And at the same time, don't buy into the right stocks afterwards

RP: What can you do, then, to shift your focus away from the here and now? This simple tip is surprisingly helpful.

JK: It sounds strange, but my I would say best recommendation I can give is don't look at your portfolio too often. Which is exactly what most people don't do.

Most people, if they're worried about their investments, start to look more often. 

But the problem is, the more often you look, the more you see these kinds of short term swings and the short term noise that actually doesn't matter in the long run. 

RP: Another way to avoid mistakes is to use a financial adviser not to pick and choose investments for you, but primarily to manage your behaviour.

JK: A financial advisor is there to manage your emotions, to manage your behaviour, to help you when you get greedy, not to get too greedy, to help you when you're afraid in a crisis like, we've had so many in the last 10 or 20 years to not sell everything, but to stick to your investments, even though it feels very, very bad at the moment. 

So, in essence, a great financial advisor is one who can play devil's advocate for you. 

RP: So, returning to that tennis analogy, don’t try to play amazing cross-court winners. 

Focus instead on avoiding mistakes. And, perhaps most importantly, find yourself a coach.