Dean Meffert @DeanoMeffert: "Despite the selling mood on..."

Germany

Despite the selling mood on the tech-heavy NSDQ100 (-13% last month) leads me to the occasion that I would like to address what I believe to be common mistakes made by private investors: The most common mistake I encounter especially on eToro is the constant 𝗮𝘁𝘁𝗲𝗺𝗽𝘁 𝘁𝗼 𝘁𝗶𝗺𝗲 𝘁𝗵𝗲 𝗺𝗮𝗿𝗸𝗲𝘁. If you've been following me for a while you might have noticed that I repeat myself here regularly. In a very banal way it might make sense to always buy when the price is down and sell when it's up. The problem here is that when we look at the price, we are looking at the past. In retrospect, it is always easy to recognize lows and highs. But in the moment itself, it is always just an attempt to get closer to these levels. Certain psychological support and resistance can provide a tendency here, but it is not a magic bullet either. It makes more sense to use the cost-average effect here. The regular re-purchase and invest, causes a average purchase price. For example, the last two-week sell-off was offset within 3 days. Everyone who sold out of fear made losses and missed the recovery. Everyone who has held on to the positions is currently about +/- 0 and can participate in the further recovery with a larger capital. The second major mistake is an 𝘂𝗻𝗰𝗹𝗲𝗮𝗿 𝘆𝗶𝗲𝗹𝗱 𝗲𝘅𝗽𝗲𝗰𝘁𝗮𝘁𝗶𝗼𝗻. A 𝗺𝗶𝘀𝘀𝗶𝗻𝗴 𝗿𝗶𝘀𝗸 𝗰𝗼𝗻𝘀𝗰𝗶𝗼𝘂𝘀𝗻𝗲𝘀𝘀 belongs to this. Here it helps to make oneself fundamentally conscious that a high return inevitably means a higher risk and a higher volatility. This is about an opportunity/risk ratio. The opportunity-risk ratio shows for each transaction what profit it can expect for the potential loss in value of 1 Dollar, i.e. how much I risk for the potential profit and how high this could be. The lower the ratio, the higher the risk. For example, my maximum drawdown within one year is 9.32%. Looking back into the last 12 months, I have been able to make 95% profit. In retrospect, this corresponds to an opportunity/risk ratio of more than 10.2. An investment that makes only 30% profit with the same drawdown has an opportunity/risk ratio of 3.21. The potential profit is lower with the same investment and therefore more risky. Nevertheless, it is a fallacy to believe that a lower risk means that there are no losses. The markets inevitably have movements in both directions and this leads us to the next point: 𝗦𝗲𝗹𝗹𝗶𝗻𝗴 𝘁𝗼𝗼 𝗳𝗮𝘀𝘁 𝗼𝗿 𝘀𝗲𝗹𝗹𝗶𝗻𝗴 𝗼𝘂𝘁 𝗼𝗳 𝗽𝗮𝗻𝗶𝗰. When you see the amount invested diminish, or when a new investment goes red and the economy starts to look bad or bad news is announced, it is hard, especially for beginners, not to make a bad decision for fear of losing. But here you can always be sure of one thing, you will always sell worse than a few days before and that you will miss a subsequent recovery, which almost always follows a market correction. You can avoid all these mistakes by investing in your strategy out of conviction, or by looking for a popular investor whose strategy you trust. Think about what profit you want to make and how much loss you can temporarily accept and what your final limit is. Such a decision will also help you to distance yourself from your investment and thus ensure that you avoid sales out of panic or fear. If this article has inspired you, I would be happy about a comment. Also, feel free to share it with your friends. $NSDQ100 $GER30 $SPX500 $UK100

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