If you're anything like me, you might think that you're an unflappable investor. But the truth is, many of us are actually making 1 simple investing mistake.
What mistake could you be making?
It all comes down to human psychology. Us investors are often our own worst enemy when it comes to making investment decisions.
One of the most common mistakes is being susceptible to 'overconfidence effect'. The overconfidence effect is a cognitive bias relating to your own abilities.
In essence, it's an investing mistake where you attribute all your investing success to your own skill, rather than luck or forces outside of your control.
For instance, say you invested in Afterpay Ltd (ASX: APT) at the start of the year. You would have earned a tidy 145.67% gain throughout the year and might be feeling pretty good about yourself.
However, the overconfidence effect comes when you start thinking that you should be a small-caps manager because of this 1 win.
It's easy to forget that many of your other ASX picks may have underperformed the market this year.
What else could mean you're getting in your own way?
While the overconfidence effect is 1 common investing mistake, there are many, many others.
The biggest one here is trying to time the market. While you might know that a particular ASX share is undervalued, sitting out too long could be a huge mistake.
For instance, say you didn't want to buy CSL Limited (ASX: CSL) at the start of 2016 because it was overvalued at $105.31 per share. If you'd sat out on the last few years of gains to try and time the market, that would probably be an investing mistake.
The losses that you might experience in a correction could be well and truly offset by your gains in the good times. History has showed that time in the market generally is better than timing the market, and I think I'll stick with that in 2020.
