Mistake #7: Compounding Your Losses by Averaging Down Far too often investors fail to accept the simple fact that they are human and prone to making mistakes just as the greatest investors do. Whether you made a stock purchase in haste or one of your long-time big earners has suddenly taken a turn for the worse, the best thing you can do is accept it. The worst thing you can do is let your pride take priority over your pocketbook and hold on to a losing investment, or worse yet, buy more shares of the stock since it is much cheaper now.
Remember, a company's future operating performance has nothing to do with what price you happened to buy its shares at. Anytime there is a sharp decrease in your stock's price, try to determine the reasons for the change and assess whether the company is a good investment for the future. If not, do your pocketbook a favor and move your money into a company with better prospects.
Lesson #7: Letting your pride get in the way of sound investment decisions is foolish and can decimate your portfolio's value in a short period of time. Remain rational and act appropriately when you are inevitably confronted with a loss on what seemed like a rosy investment.
Conclusion With the stock market's penchant for producing large gains (and losses) there is no shortage of faulty advice and irrational decisions. As an individual investor, the best thing you can do to pad your portfolio for the long term is to implement a rational investment strategy you are comfortable with and stick to it. If you are looking to make a big win by betting your money on your gut feelings, try the casino. Take pride in your investment decisions and in the long run your portfolio will grow to reflect the soundness of your actions.