7 Deadly Sins Of Investing

Published in Investing on 20 April 2012

Which sins are you committing right now?

As an investor, who is your biggest enemy? You. Why? Because you're a sinner. You are too easily led into temptation.

There are seven deadly investment sins, and you have probably committed all of them.

But you're good at heart, aren't you? You want to do the right thing. Now is the time to repent your sinful ways, and become a better investor in the process. Here's what you need to resist.

Wrath

Emotion clouds the judgement, and few emotions cast more clouds than wrath. When that red mist descends, you lose sight of everything else.

There are plenty of reasons why investors become wrathful. You might have just made your worst investment ever, been through a costly divorce or been rocked by Britain's £750bn 'pension bombshell'.

You get angry. To recover your losses, you decide to get more aggressive.

So you do crazy things, like shorting the FTSE, oil and silver, desperately chasing ten-baggers, or gambling your pot on some high-risk emerging market biotech start-up.

There is a time and place for aggressive investing, but it needs to be done with a cool head.

Greed

Getting greedy costs investors more than any other sin. Greed is what makes people dive into stock market and property bubbles too late. Greed is what makes you ditch a long-term hold with a decent yield for some flighty growth stock. Greed racks up your portfolio charges as you lurch between different sectors and stocks.

Greed has been a constant through investment history. It allowed tulip mania to flower. It blew up the South Sea Bubble. It triggered the technology boom.

To be a sound, long-term Foolish investor, you need to curb this particularly base instinct. Greed isn't good, and you're not Gordon Gekko.

Sloth

I always thought sloth was one of the lesser sins, and that's the case with investing. The slothful investor has some advantages. They save on dealing fees and bid/offer spreads. They avoid making rash judgements, such as buying a growth stock on a whim or selling a recovery stock too soon.

You have to give your portfolio time. Slow investing, I call it. You might call it 'buy and hold'.

But slothful investing isn't so clever if you can't summon the energy to research your investments properly before buying them, or are too lazy to ditch that high-charging, underperforming pension or fund.

Sloth or growth. It's your call.

Pride

Everybody knows what pride comes before. If you think your run of good fortune is down to your innate genius, if you think you hold the secret to making vast fortunes from penny shares, or if you think you can beat those slickers in the City year after year, you are heading for a fall.

The stock market is a tough taskmaster, and it has no time for bigheads. Nobody knows anything, so what makes you so special?

Lust

You've just got to have it, haven't you? That go-go gold miner. That trend-setting tech stock. That 10% yield. That fund that just doubled in value. That frontier market that is set to shoot the lights out, er, after the locals have stopped shooting the lights out.

This isn't Foolish investing. It's just lust.

Envy

So what if you know somebody who made a mint on emerging markets? Or shorted the banks in 2008 (then went long in early 2009)? Or bought gold at $600 an ounce?

Somebody has to make money out of investing. This time, it wasn't you. Don't be envious. Don't turn green. And don't do anything daft, like trying to follow their strategy, one year too late.

Your turn will come. Be patient.

Gluttony

The stock market is full of tempting treats. Investors are spoilt for choice. A quick run through the Motley Fool menus throws up juicy high-yielders, exotic oils, luxury goodies, big beer, pancakes and pizza and a tasty Apple.

You can't dig into all of them. You have to choose carefully. Work out which ones suit your investment palate and focus your efforts on them. Nobody likes a glutton.

Wrath, greed, sloth, pride, lust, envy, gluttony. Any of them could destroy your investment strategy. Now that really would be a sin.

For help trying to grow and preserve your wealth, start your 30-day free trial to Motley Fool Share Advisor today. You'll get immediate access to what we believe are the best shares you can buy today, complete with our in-depth analysis and ongoing coverage.  

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Comments

The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

IDPickering 20 Apr 2012 , 12:11pm

An excellant article Harvey.

I nearly fell foul of the gluttony sin today, by buying some more of a somewhat tiddler against the larger stocks in order to catch the next juicy ex-divi date.

That lead to a discussion over on the HYP Practical Board, the thread for which, if anyone is interested, is here;

http://boards.fool.co.uk/oooh-im-tempted-12534240.aspx?sort=whole

We live and learn, and I'm only human afterall.

Regards,

Ian.

eccyman 20 Apr 2012 , 4:01pm

Why wasn't Jesus rich then?

MetricInvestor 20 Apr 2012 , 5:21pm

My biggest sin is falling for the chick with a surname Lenigas with a beautiful pair - penny oilers and penny miners.

SwaziGold 20 Apr 2012 , 5:55pm

Great article. And each deadly sin is so true.

sludgesifter 20 Apr 2012 , 6:26pm

Beautifully written and spot-on.

apprenticeDRL 20 Apr 2012 , 7:51pm

IDPICKERING

Ian I followed your link, very enlightening to follow your thought processes.

pastybap 20 Apr 2012 , 10:07pm

I don't comment much on here. However, that was an excellent, original piece Harvey!

IDPickering 22 Apr 2012 , 9:15am

Hi apprenticeDRL,

Glad you enjoyed that thread. I'm forever second-guessing myself, and with only one purchase a month, I like to try and get it right.

Running my thoughts by the guys on that board I find very helpful.

Hannibalis 22 Apr 2012 , 10:16am

Mmmm - I'm not sure the parallel works fully.

Greed OK. But where is the opposite of 'fear': 'overconfidence'?

And 'impatience'? I think 'patience' may well be the key virtue!

'Sloth', as you say, might be good in the sense of avoiding overtrading - but you still need to do your homework!

http://www.the-diy-income-investor.com/2011/09/how-to-sit-on-your-hands.html

DashingDave123 23 Apr 2012 , 12:15pm

I don't think I've done any of those, but they are probably harmful if you do. It would be much more useful to have the 7 dos instead of the 7 don'ts, but only if they are numerical, not vague suggestions about buying good companies with good managements that would have led to Enron and Tesco.

nmmerri1 23 Apr 2012 , 2:10pm

Hi DashingDave123,

I am quite new to this investing lark and have a scientific brain which wants a straightforward formula to decide when to buy (and even more importantly, when to sell!). To find some "DOs", try looking around this site for HYP and PYAD but be careful to bear in mind any caveats and always DYOR! One "DON'T" from me would be to write of TSCO by following Mr Market. They are currently having a sale and the overall figures look even better now than they have for a while.

Happy investing,

Neil

Jonesey12 23 Apr 2012 , 3:14pm

Thanks for your kind words people, I'm glad you enjoyed the piece. That's cheered me up after just collecting a £80 parking ticket. :)

Harvey Jones (author)

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