Though baseball and stock market investing may not seem to have much in common, there are a few key similarities—both are stats-driven and require focus, a relative lack of emotion, and a clear mind. And when it comes to investing, you would probably rather emulate Babe Ruth than Bill Buckner. Here we discuss three common investing mistakes that every major league investor should try to avoid.
Swinging For the Fences on Every Pitch
As any baseball fan knows, with the exception of the Home Run Derby, going all-out on every pitch is a good way to tire yourself out and potentially strain a muscle. The same goes for investing, particularly when it comes to individual stock picking.
Though hindsight can be 20/20, and everyone wishes they had bought Amazon at $10 or Tesla at $6 only a decade ago, there are few “sure things” in investing.1 Pinning your financial hopes and dreams on a moon-shot (or a long-ball) can be a good way to lose it all.
Instead, do some research and talk to your financial professional about the best investment strategies for your age, income, and risk tolerance.
Skipping the Seventh Inning Stretch
Like baseball success, investing success requires hard work, practice, and most of all, patience. Watching the daily ups and downs of a gyrating stock market can make one nervous enough to consider selling it all and cashing out. But when you are investing for the long term, like for retirement, this volatility will eventually be reduced to just noise. In other words, over a 30-year investing horizon, you will see a few big drops and maybe even a recession or two—but the overall impact over such a long time span should be negligible.
If you find yourself feeling stressed out by your investments or itching to take some action, take advantage of the seventh-inning stretch. Walk away, stop checking your accounts, and schedule an appointment with a financial professional to review your portfolio and make sure it is still meeting your needs and risk tolerance.
Letting Your Emotions Get the Best of You
Success in baseball requires a clear mind and unwavering concentration. If you’re distracted, tired, angry, or otherwise stressed, you are probably not going to perform at your peak.
And in the investment context, allowing your emotions to overwhelm the more logical decision-making centers of your brain can also be a bad idea. Some emotion-driven decisions that can spell investment disaster include:
- Falling in love with a company or investment instead of neutrally evaluating its metrics.
- Buying or selling a stock based on minimal research or a “gut feeling.”
- Frequently buying and selling investments without considering the tax consequences, such as wash sale rules.
- Cashing out a 401(k) or taking a loan without investigating your other options or alternatives.
- Trying to time the market.
By approaching your investing decisions as methodically as you would approach hitting a pitch from Roger Clemens, you may be well on your path to becoming an All-Star.
Footnote
1 Tesla Stock Price History, macrotrends.net, https://www.macrotrends.net/stocks/charts/TSLA/tesla/stock-price-history
Important Disclosures
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by WriterAccess.
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