7even Deadly Sins About Investing

Investing can be a nightmare as it is a market filled with mind boggling  choices, like stocks, bonds, mutual funds, and variants of these. Banks have the advantage of being nationally licensed to sell financial products today but are still not regulated enough. With the numerous "special offers" of cash backs, dividends, vouchers, etc. -whatever you call it.
This is sad despite the "Financial Services Acts'' for banking and financial institutions in place in Singapore (remember the 'Mini-bond case through Lehman brothers'??).

Add to this, there are advisers vying for your business, so one could be driven to paralysis and inaction.
Worse though, you could be led astray and commit one or more of the seven deadly sins of investing - all by yourself!

Unlike the biblical 7 deadly sins, the investing sin counterparts don’t hurt your soul, just your assets. Here are my concise version of 7 deadly investing sins.

1. Lust: Choosing the Wrong Financial Advisor

Lust is intense desire or need, particularly directed toward the opposite sex. Legions of "talented" and attractive men and women are clamoring for your investment pie. Here is why choosing the wrong financial advisor can be a major financial mistake:-

​According to Neal Frankle, CFP of Wealth Resources Group and editor of WealthPilgrim.com. “The big problem surfaces when investors need objective financial advice but talk to people who can’t possibly provide it — commission sales people. You can avoid this pitfall by always asking how the advisor gets paid.”

Investment brokers and financial advisors compensated by selling products and paid by its commission have a strong conflict of interest - because they only make money when you buy or reinvest matured plans. 

- They might be tempted to encourage excessive trading when it benefits them more than the investor, which the Securities and Exchange Commission refers to as “churning.”
- They will be tempted to only sell you a product they represent, like tied-agents of an insurance company or a bank adviser that ties up with only one insurer, or
- Using their attractive suave image to coax you into big value investments so that you are classified as a "smart" and "astute" VIP customer with special  privileges.

This is unlike fee-based advise, where the adviser collect a fixed upfront fees from you when you determine that his advise would be best and any products needed that are free from biasnesses.

2. Gluttony: Excessive Trading and investing

Gluttony is excessive eating and drinking. Reams of research suggest that excessive trading leads to lower returns. Each trade requires you to be correct twice, once when you buy and the other time when you sell. Plus, every trade costs you a commission payment.

“Individuals with a high risk tolerance often exhibit overconfident behavior resulting in overtrading, higher commissions and lower returns within their investment portfolios,” according to Victor Ricciardi, assistant professor of financial management at Goucher College and co-editor of “Investor Behavior: The Psychology of Financial Planning and Investing.“

Excessive investment of your resources without an overall financial planning also hurt your happiness and overall purposes in life. Over committing restrict your financial  freedom to do other things that the very purpose of investing hope to achieve.

3. Greed: Buying Into high yielding instruments

Greed is the excessive need to acquire and accumulate more and more. Investors can be blinded to poor investment choices by this sin.

In the late 1990s, stock prices were stratospheric. With the explosion of the technology industry, investors were seeing their investments grow by unsustainable proportions - double digits growth within months! The common mantra of the time, due to the new technologies, was, “This time it’s different.”

These words are frequently spoken as markets reach their peaks. They’re used to justify buying in at inordinately high stock market valuations, according to The Wall Street Journal.

This investing sin has been proven to be wrong every time. Buying overvalued assets doesn’t lead to future profits.

The remedy for the sin of greed in investing is to create a sensible investing plan and stick with it. And you will be better off having strong dividends paying blue chip equity or guaranteed annuity plans.

4. Sloth: Failing to know or learn Basic Principles Before Investing

The sin of sloth is an avoidance of hard work and activity. Investors who are lazy in their due diligence and don’t learn about investing before diving in are at risk of losing their resources.

Investing, like any endeavor requires advance information and knowledge in order to succeed. Being slothful and taking an easy route that someone else can do it for you - is a recipe for investing failure.

“This sin is easy to avoid,” said Frankle. “There is so much information that is so easy to digest that it’s easy to correct it. Commit to just spending 30 minutes a day reading credible sources (like this blog) from people who aren’t trying to sell you anything and you’ll be fine.”

5. Wrath:. Overly Aggressive little patience

The deadly sin of wrath is extreme and vengeful anger. Anger is frequently associated with a lack of patient  control or recklessness. These traits can be seen in some overly aggressive investors.

The overly aggressive investor is attracted to risk, even to the point of seeking it out. He or she doesn’t bother with a sensible investment strategy that includes balance and diversification (putting all eggs in one basket).

The overly aggressive investor is irrational, invests in untested market timing schemes or strategies that promise higher-than-reasonable rates of return. This investor needs to tone it back, take a breath and choose a rational investment strategy such as a passive, index fund or single-digits compounding  growth endownment plans.

6. Envy: Keeping with the Joneses - Herd Mentality

Envy is a desire to have what someone else has. This gives rise to 'Herd mentality' - and refers to investors who follow the crowd and invest in what’s popular without concern for valuations or one’s individual circumstances. I see this in chasing the "property appreciation" markets.

“Investors tend to be very sociable beings, especially during the time of a stock market bubble,” said Ricciardi. “These individuals base their decisions on the first piece of information to which they are exposed, such as an initial purchase price of a stock.”

“This crowd psychology causes the individual to expect a stock price to continue increasing for an unlimited time horizon,” he said. “Once the bubble bursts, this will result in severe losses for the individual investor.”

Herd mentality led investors to follow the crowd and buy into the current boom while prices were at their peaks - only to watch their investments come crashing down.

Avoid herd mentality by understanding your own personal risk profile, investing time horizon and market history.

7. Pride: Letting Ego Drive Investing Decisions

The sin of pride rears its ugly head when you think you’re better than others and exhibit much self-esteem.

Do you think you know better than others when it comes to investing? Even a seasoned investment portfolio manager needs to learn and accept that academic evidence shows it is quite difficult to beat the market returns versus accurate understanding of investing research.
This can be avoided by reading highly regarded investing books by Burton G. Malkiel, Charles D. Ellis, Richard A. Ferri, William J. Bernstein and John C. Bogle.

Just like the biblical deadly sins can hurt your spiritual self, these seven investing sins can lead to a dismal financial future. With some investment research, due diligence and a smart plan, you can avoid succumbing to these financial evils.