Sometimes the Best Stock Investment Is the One You Never Made
Investors love to talk about their successes: the most profitable picks, perfect timing, or portfolios that performed beautifully. But it’s just as important to talk about the investments that, thankfully, were never made. Often, the mistake you didn’t make is your greatest gain, and it can protect your entire portfolio from collapse.
Stock markets move in cycles, but downturns usually happen faster than recoveries. One or two bad mistakes can wipe out years of returns. It’s especially disastrous to buy the wrong stock at the wrong time and hold onto it for too long.
One of the most common errors is buying a familiar, previously successful stock after its price has dropped sharply. Investors think they’re getting a bargain, but the company may be struggling with deep structural problems and may never return to its former highs. The price keeps falling, and the investor ends up trapped in what’s known as a value trap. A good example is Nokia’s stock over the years. A cheap price alone is not a reason to buy; quality matters too. On the stock market, as everywhere else, the best value for money is what counts.
Losses Often Lead to More Mistakes
If a bad purchase has already been made, the next trap is clinging to losing positions. Humans feel losses more intensely than gains. That’s why many investors refuse to sell at a loss, hoping things will turn around. This creates so-called zombie stocks, holdings that take up space and energy but offer no real potential. Losses must be cut early, no matter what. Hope is not an investment strategy.
Many investors fixate on their purchase price, as if it determines what should happen to the stock. In reality, the purchase price means nothing for future returns. A stock can drop significantly and still be overvalued, or the opposite. An investor should always ask: where is the best growth potential right now? If new, promising opportunities appear, it may make sense to sell older holdings, even at a loss. Investment decisions should be based on future prospects, not the past.
Don’t Fall in Love with Your Stocks
Stock investing can be fascinating and even addictive. But one of the most important lessons is this: don’t fall in love with your stocks. They’re not pets or family members; they’re investments to be bought and sold according to a predefined strategy. The stock market is a game of probabilities where psychology plays a huge role. That’s why emotions must be kept out of it. Save your feelings for the people close to you, not for your portfolio.
The original Finnish column text is available in the digital version of Salonjokilaakso, on page 4.