Sometimes, the best way to make a purchase is to know what not to do while making a purchase.
In my experience, I have found myself guilty of making an impulsive purchase, thinking if I don’t buy now, it might get too expensive for me to buy later on. Those instances have not yielded good results. I have either found myself looking for an exit, almost immediately when the stock price takes a dive. When I try to focus on the fundamentals and ask myself, if things were to go bad, how well can this hold, I do not find myself comfortable holding such equity.
Another interesting mistake I caught on to few weeks ago, was falling in love with my stocks. This is a no-no. As a prudent investor, you must learn to separate your emotions from the fundamental analysis.
Recently, I found myself caught in this situation with this company, Seaboard. I loved it. It was good, except not good enough for me, as the ROE, and the growth did not match with my expectations. Somehow, I ended up buying it because of its growth history, small market cap, and perhaps as a means to diversify. Although, I still feel it was good for diversification, I could find better opportunities to allocate my capital and for it to outgrow the returns on the Seaboard investment.
At this point, I do not care about alternative investments, nor do I want to diversify. If in the process of finding good value, growth potential, stability, and ability to provide good returns, I stumble on a company that can be viewed as a diversification holding, I would not mind buying it. However, my sole focus would not be to diversify, and remains on the fundamental growth and value opportunities. Value opportunities are hard to find in a bull market.
I refrain from making purchases because of the news, noise doing rounds, analysts hiking the price targets, suggestions from the investment forums, and/or a recent price increase of a company because it had a fantastic quarter that beat the analysts’ expectations.
In fact, I want to buy companies that are dull, quiet, relatively less liquid in terms of its volume being traded on a daily basis, and high dollar value of the stock. Over a period of time, I have found that investing in such companies, you enter this pool of shareholders that have a strong hand and are less likely to make an impulsive sale if some unfavourable industry/market outlook news started doing rounds.