The uncertainty in COVID-19 outbreak has resulted in many businesses closing down. Nevertheless, the market has started to correct since its crash in early 2020. With the drop in the market and people working from home, more people have begun investing which is a good thing.
Investing is definitely a skill everyone needs to pick up at a certain point in their life. If you do not invest your hard-earned money, you will lose it through inflation. With that, we have decided to piece this post to share some of the common investing mistakes you should take note of. Hopefully, it will help you on your journey.
1) Lack of diversification or diversifying the wrong way
The first common investing mistake often made by investors is diversification their portfolio wrongly. A diversified portfolio helps in reducing unsystematic risk. No doubt that most people know the importance of diversification when it comes to investment. But when it comes to application, not everyone does it effectively.
To fully benefit from diversification, one must not under or over diversify their portfolios. Over diversifying, for instance, serve no greater benefit once the unsystematic risk has been taken out. This is provided that you have diversified your portfolio correctly. Which leads to this issue where we often diversify our portfolio ineffectively.
Using REITs as an example. Assuming that you invest in Prime US REIT which is an office REIT with asset presence in the United States. By diversifying your portfolio to another two more REITs such as Keppel Pacific Oak REIT and Manulife US REIT which are both also office REIT in the United States, you do not achieve effective diversification. Despite spreading your assets to 3 different REIT, your holdings are essentially still concentrated to “Office REIT sector in the United States”
The effective way to diversify your REITs holdings is to spread our your holdings to:
- REITs in different sector (Retail, healthcare, industrial and etc.)
- Different Geographical region (Other than the United States)
2) React to every piece of news
The second common investing mistakes investors make is reacting to every news they read on. They get panicked over small little news which is often time noise. Do not get us wrong. Keeping yourself updated to the latest events and news is important. What is optional is reacting to them.
Often time, people sell off their position when they stumble upon slight negative news which does not change the business fundamentals. An example is economic data such as the employment rate. How you should approach this instead is to continue keeping yourself updated with news and events. Instead of reacting to them immediately, analyze the news to determine if this change the business fundamentals of the REITs or share.
3) Following the crowd or hype blindly
FOMO of fear of missing out is a real problem. We get it as we fall for it as well at times. Your friends are talking about it, you read it in the news, the uncle at the coffee shop is discussing it and the share price is soaring. As a human being, it is totally normal to feel like you are missing out. What if it soars higher and you miss out. There is a chance that would happen. Similarly, there is also a chance the stock might fall.
Referencing one of Warren Buffet’s quote:
“ Be fearful when others are greedy, and greedy when others are fearful.”Warren Buffet
Again, there is nothing wrong to listen to stock tips of ideas. But as investors, you should also conduct your own research and determine if it is worth buying.
4) Not doing proper research
The fourth investing mistakes commonly make is no doing proper research before they invest. Interlink with the previous point, they heard of a potential stock and bought it immediately to avoid missing out. The missing link here is not doing proper research.
Investing in any REITs or stocks is essentially investing in the business itself. Would you buy or run a business not knowing what they do? Similarly, when you invest in REITs or stocks, you need to know what they are doing, how they have performed and what is their future plans in years to come. This would give you greater clarity on whether the stock is a good buy.
5) Trying to time the market
The last common investing mistakes investors make is trying to time the market. Profiting from the market is fairly simple theoretically, buy low and sell high. In real life application, nobody knows when is the bottom and nobody knows when is the highest peak.
Everyone wants to buy at the absolute low and selling at the absolute high to generate the greatest return. The only problem is nobody can time the market well. You might get lucky here and there but no investors can be certain on the absolute bottom or high.
By trying to time the market, investors will either end up waiting for the absolute bottom which often time result in a missed opportunity. Similarly, they try to time the absolute high and ended up losing out when the market corrects.
The best way to approach this is to have a clear mindset on your investment goals. For instance, you can apply a dollar-cost averaging approach or having a fixed entry price and exit price you will strictly follow.
We hope you find this post helpful in your investment journey. REIT Pulse is a platform launched to help individuals get started with REITs investing. If you are just getting started, feel free to read more of our REIT Guide and REIT Analysis. You can also read more about what REITs are if you are new to REITs.