Beware the seven deadly sins of investing

Perfectly rational thinking, but when the FTSE 100 finished the year at 7,142 those “wait and see” investors who tried to time the markets had missed out on a lot of growth.

Likewise, some investors may not want to risk new money now at current highs. They think it is the time to switch into cash and then reinvest when markets have fallen.

Switching into cash is the relatively easy bit but when do you switch back into the markets?

Nobody knows when the markets are at their high or low, least of all amateur investors.

Surely a correction is due, you might think. But when? Given Trump promises to spend, spend, spend on infrastructure while taking the brakes off the energy sector, it could be some time.

Alternatively, he might do something so cataclysmically stupid that markets are sent crashing.

Hard to second guess Trump when he seems to constantly second guess himself!

Nobody – I repeat, nobody – can time the markets consistently.

They may get lucky once or twice but you can’t continually deliver.

Which brings us to the psychology of investing, something I have always found fascinating.

According to John Nofsinger, finance professor at Washington State University and author of Investment Madness: How Psychology Affects Your Investing… And What To Do About It, the “herd mentality” is one of the most glaringly obvious examples of irrational investing.

People see a stock rising and they want to hop on for the ride. But if something is “hot” it will often burn your fingers.

Panic selling – the “end of the world” syndrome – is just as bad.

So here are the “seven deadly sins of investing”. 1) Pride – which occurs when you hold a bad investment instead of realising your losses. Admit when you are wrong, cut your losses and sell your losers. 2) Lust – in relating to investing is when you chase a company for its body (stock price) instead of its personality (fundamentals). 3) Avarice – selling dependable investments and putting that money into higher-risk investments. 4) Wrath – occurs after a loss. Where you blame everyone else rather than yourself. 5) Gluttony – lack of self-control which causes all your eggs to go in one (over-hyped?) basket. 6) Sloth – being lazy and not doing research before investing. 7) Envy – coveting the portfolios of successful investors. Instead of letting this eat away at you, why not learn from them and try and emulate them. Reading the books of the likes of Warren Buffett may not be a bad start.

Our consistent message is – leave it to the professional fund managers. Let them tweak your portfolio by taking profits and identifying opportunities.

It may not be the time to invest in a FTSE 100 tracker fund but a balanced, diversified portfolio run by proactive managers should be better positioned to cope with the Trump/Brexit world we find ourselves in. Trevor Law is managing director of Merito Financial Services, chartered financial planners, based in Solihull. Email: tilaw@meritofs.com