I was recently surfin’ some investing message boards and came across a great summary of the investment process. More specifically, it was a very simple description of the two kinds of mistakes an investor can make. It really hit home with me. When you filter the investment process down to its most basic level, there really is only two things that can make a good plan go completely haywire.
The two kinds of mistakes one can make in investing are:
1) Not buying a company that one should have bought
2) Buying a company that one should not have bought
Pretty simple if you ask me. How many times do you as an investor analyze a stock to death and like what you see only to sit on the fence and not commit any money to the company. I have. Many times these good companies go up in price.
And how many times have you bought a company that you realize after the fact you should not have bought. In this scenario, I am not talking about a company that looks good fundamentally and then goes through a decline only to rebound at some time in the future. I am talking about a company that you should not have bought in the first place because of poor fundies. bad industry, or other reasons. You just should not have bought the stock!! I know I have.