One of if not the most critical keys to building wealth are investing. Perhaps only second to how much you earn, and this is debatable, investing and how well you do it will be ultimately responsible for how much wealth you accumulate. Investing is a whole area of study and as such there are mistakes or sins that you can make in the process of investing. We will identify the 7 deadly sins of investing, how they come about and what to do to guard yourself against them and their effects.
I thought it best to start with this one because we see a lot of it, especially in Zimbabwe. Envy in this case refers to being covetous of the returns people have achieved in other types of investment or perhaps just different investment options in the same investment class. The problem here is you will envy the returns of the livestock investor so much that you will leave the stock market which you are used to only make an absolute mess of it in livestock investing. Why? Probably because you didn’t fully understand all that is involved in being a successful livestock investor. It was envy for the returns that pulled you.
Greed looks a lot like envy but it takes a different shape or form of expression. Greed is the desire for more, even when that more seems unlikely or impossible. You will see a lot of this on the stock market. I must clarify that there is nothing wrong with wanting more; you are not an investor if you don’t want more. The problem here is chasing the more with reckless abandon. Expecting great returns even when they are not possible. This is done by people who jump on the hot investment alternative or the hot stock on the stock market. Sadly, more of them than not these people end up losing in positions they never should have entered in the first place.
Pride is a particular affliction that comes hot on the heels of success. You chose a particular investment alternative and you won with it. Perhaps you won big. Now you have considered changing your social media description @The next warren Buffett” or something equally cringeworthy. That is slightly annoying but not the problem. The problem is abandoning the principles and practices that gave you the initial success. Before you know it things are going wrong and you have no idea why. Trust the process and never forget the process that gave you your initial success.
One thing about investing is it is almost always information-heavy. It doesn’t matter whether you invest in stocks, crypto, commodities or products like unit trusts and ETFs. You will almost always have at least one eye on the news. Gluttony in this case refers to consuming too much news and updates. Yes, the price of your favourite counter went up today but if you plan to hold it for another 15 years that really has nothing to do with you. Also, be aware that not all news is newsworthy, you need to learn to filter things out and separate the wheat from the chaff. Finally, I advocate for knowing as much as possible about companies you invest in for stock market investors. However, I always say you want to keep this between 5 and 15 companies rather than knowing every piece of news about every company. Leave that to analysts and journalists.
Laziness when it comes to investing manifests in laziness to do the work. I cannot count the number of times people have been mildly aware of information that should have convinced them to invest in certain but they chose to invest elsewhere. It didn’t go bad for them but they certainly would’ve enjoyed a better return or time had they just done the work. So laziness is somewhat the opposite of gluttony. When investing you need more than to know how the investment works, you need to understand how it works. You can always check how well you understand something by trying to explain it to a 6-year-old. As an investor this is your money and your future, there really is no excuse for not staying on top of things.
You make an investment that you believe is going to be HUGE. You already start looking at luxury German vehicles. Suddenly the investment doesn’t do as well as you thought it would. Then it starts to lose money. Obviously, the market is wrong about the company and you’re going to show them. So you double down on your investment, you “buy the dip” and wait to rub it in the faces of those doubting Thomases when your investment rebounds. However, the investment continues to play dead or to sink even further. That’s the problem with wrath, lashing out in anger isn’t the reaction to a poorly performing investment. What you need to do is accept that there was something you didn’t see. Perhaps it was unforeseeable.
Finally lust. Well, lust for investors is somewhat the opposite of wrath. It can however manifest in a similar behaviour pattern. Lust is of course when we find ourselves infatuated with an investment. Maybe it’s a business that is very popular. Perhaps we like its founders or its story. Maybe you followed the advice to buy shares of a business you know or use every day. Whichever the case through a process rather than an event you have convinced yourself that the investment is great when in fact, it isn’t. So much like the wrath-filled investor you decide to double down. Lust is blinding and will have you being a poorer investor than you should be.
The seven deadly sins of investing. As you should be able to tell these apply universally to all investments. Which of these do you identify with? Perhaps you identify with all of them.