Mistakes in Investment

There can be many different kinds of mistakes in investment. If I were to list out every single mistake I’ve made in the past, it would probably be too long. But to briefly summarize, I think we can categorize mistakes into two main ones:

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There can be many different kinds of mistakes in investment. If I were to list out every single mistake I’ve made in the past, it would probably be too long. But to briefly summarize, I think we can categorize mistakes into two main ones:

1. Investing in assets with a bad quality

Warren Buffett stated

that time is a friend to great businesses, but a foe to bad ones.
– Warren Buffett

The longer we hold onto bad quality assets, the bigger our losses get. We lose both our investment and the opportunity to invest in other things.

Just think about it. If we owned a bookstore and had to select which books to put on the stand (our space is limited), which books would we pick; between bestsellers and those that nobody really reads? If we keep picking unpopular books to sell, aside from not being able to sell them, we would be using up all the shelf space that could’ve been used to place bestsellers. We make no sale, and gain no customers, because they know that we sell nothing interesting here. Eventually, we’d have to close down our bookstore.

It’s the same for investing. If you keep investing in bad stocks, eventually your port will eat itself up and force you to quit investing altogether.

2. Investing in assets that are overpriced.

Warren Buffett said that

investing in good assets might not necessarily be a good investment if the price we paid is too high.
– Warren Buffett

Logically speaking, there probably isn’t anyone in the world who made their wealth by buying assets that are more expensive than their original value.

Again, let’s go back to our bookstore analogy. We own the bookstore and would like to purchase some good books to sell, however, we find that we’d have to buy them at 200 Baht, even though our selling price is 150 Baht (because that’s the price our competitors are selling). If we bought those books and sold them at a loss, before long, we’d still have to close down our store. The same goes for investing -the more expensive we paid for our asset, the more problematic it will be for us to sell them, and in the end nobody would want to buy it from us. So either we make a loss, or continue to hold onto it until somebody buys (God knows when).

In both of these cases, if we either one of these mistakes; we buy bad quality assets, or overpriced good assets, the damage is not as catastrophic. However, if we make both mistakes (buying a bad quality asset at an expensive price), then the chances of making a big, permanently loss becomes huge.

Therefore, before you invest, always consider the asset quality and the price.

Invest in great businesses at reasonable prices.
– Warren Buffett

Even better, when investing, imagine if we could own only 10 businesses in our entire lives, what would they be? What would be the companies that can build your wealth in the long-run? These 10 companies are the ones that should be in your long-term investment portfolio.

Author: Jitta

Jitta simplifies financial analysis for value investors and financial advisors alike. Our stock-analysis platform offers actionable advice to help them make better investment decisions and generate higher returns based on a simple principle: “Buy a wonderful company at a fair price.” And we do that by creating Jitta Ranking, our proprietary algorithm that ranks stocks based on their profit potential. Returns generated by Jitta Ranking since 2009 has outpaced that produced by the S&P500 index by a large margin. Jitta’s technology processes information like a human mind, assessing complicated data and digesting it into an easy-to-use and intuitive format. Its key features include Jitta Score, an indicator of a wonderful company; Jitta Line, an indicator of a company's fair price; financial statements-made-simple Jitta FactSheet; Jitta Playlist, an intelligent screener and backtest system in one; and Jitta Portfolio, a smarter investment-tracking mechanism.

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