Monday, July 09, 2012

Ritholtz: top 10 investor errors

Barry Ritholtz has a series on investor errors. They are aimed more at long term investors vs. traders, but they still may be of interest to my readers (link to #10).

1. Excess Fees
2. Reaching for Yield
3. You Are Your Own Worst Enemy
4. Asset Allocation vs Stock Picking
5. Passive vs Active Management
6. Mutual Fund vs ETFs
7. Neglecting the Long Cycle
8. Cognitive Deficits
9. Past Performance vs Future Results
10. Not Getting What You Pay For

Errors 1, 3, 7, 8, 9 are also common with traders. #1 can occur when commissions, spreads, option decay eat up most of the profits. #3 is about emotions, which for 90% of traders lead to losses. #7 is focusing too much on the tree, not enough on the forest, though for traders there is a balance there. #8 might be characterized as not knowing what we don't know, or over estimating our own knowledge. #9 chasing what is currently hot, is especially common with novices, but experienced traders also get swept up in the madness of crowd.

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