The Biggest Investing Mistake

One of the biggest mistakes I see investors continually making is to focus on implementation details while completely ignoring the overall strategy. Some actually think they have an investing strategy when in fact they’re really inventing strategies on the fly in a never ending attempt to fit their “strategies” to the things they’re implementing.

That’s doing things backwards. If you want to successfully invest in the stock market, you must start with a great investing strategy. Only then do you look at how to implement that strategy.

Don’t get me wrong, implementation is just as important as strategy and both are necessary for success, however there is a specific order in which investors must do things if they want the best chance of succeeding in the stock market.

Implementation details are the actions you take that allow you to implement a strategy which in turn lets you achieve a goal. It goes without saying, then, you must have a goal. Most investors don’t have a goal or they have a vague goal such as, “I want to retire in the future.” A proper goal is very specific, such as, “I want to have $1,000,000 in my retirement account in 20 years and six months starting with an account valued at $75,000.”

Think of it like this: hockey players, sticks and goalies are implementation details. Do you need them to win hockey games? Absolutely. However hockey players, sticks and goalies that work together to implement the neutral zone trap are using a strategy (one, incidentally, that won the New Jersey Devils a Stanley Cup) that provides the best opportunity to win.

Similarly, stock software, individual stocks, brokerage accounts and such are implementation details. Using stock software to implement a Value Investing strategy that follows Warren Buffett’s techniques to purchase excellent undervalued stocks with strong economic moats is a strategy. And using that strategy to determine if there’s a high probability you can reach your goal is the proper way to invest.

If you’re currently investing without a goal and/or strategy and simply focusing on the details, you’re probably setting yourself up to fail. You must attack the investing problem strategically, then employ the proper implementation details to give yourself the best chance of success.

For example, it may not be the best strategy to simply purchase stocks you constantly read about on the Internet. Stocks that are in the news are not likely to perform well going forward because so many investors are looking at them.

You might discover that looking at a company’s financial statements and buying those with strong fundamentals that are currently out of favour is the best strategy, so instead of wasting time and money reading news and buying overvalued stocks, you should be taking the time to properly analyze companies.

If you don’t currently have a solid investment goal and strategy, take some time right now to create them. It could be one of the most important things you do today.