I've found that that there are 10 mistakes that every investor makes, which are very costly mistakes. If you are careful they can be avoided. Here are a couple . . .

Mistake #1 – Playing Without Rules

No matter what you invest in you must create and stick to personal investing rules. It doesn’t matter if you invest in real estate, currency, stocks or options, before you begin you must create strict strategic rules that you will hold yourself accountable to.

Here is an example of the rules a real estate investor may have:

• I personally look at 10 foreclosure properties a week.
• I only invest in foreclosures that I can obtain at 30% or more below market value.
• I only buy properties that potentially have great curb appeal that will help sell the property fast.
• I do not buy properties that may generate less than $20,000 in returns.
• I do not buy fixer-uppers that require more than $10,000 in repairs and upgrades.
• I only invest in properties that need cosmetic and minor repairs. I will not consider properties that have problems with the foundation, termites or mold.
• I do not use more than 20% of my investing capital in a single investment property.
• Holding onto my cash is okay if it means waiting to find the right opportunity.
• I put my properties back on the market 15 days before they are back in show condition.
• After 60 days of no serious offers, I lower the price 3% and offer incentives, such as a free plasma screen or no closing costs.
• After 90 days of not selling the property, I list the property as a “rent to own.”
• In the event 6 months go by without selling the property, I will sell the property to another investor at break even in order to wash my hands and walk away safely.
• At least 50% of my profits are re-invested into acquiring more properties. The rest is for me to have fun with.

The rules above provide a checklist for the investor when considering opportunities. By creating strict criteria, it places limitations on the investor and takes the emotion out of the decision. There could be multiple properties that the investor finds that he knows will create great returns if he does $15,000 in repairs, or cleans up a small mold problem, but it simply does not fit into his rules for investing. Therefore, he would pass on such an opportunity.

Secondly, these rules provide a clear exit strategy with deadlines. The investor knows going in that he can potentially make $20,000, but more importantly he also knows the potential that he can lose by not selling the property in a certain amount of time. By having a backup plan, and a backup plan for that plan, the investor minimizes the downside and eliminates the need to make an important decision that is influenced by emotion or hope.

Mistake #4 – Letting the Media Influence Decisions

The stock market is partially driven by emotion. Many investors would say in the short-term the market is entirely driven by investor psychology. People hear a stock tip about an upcoming earnings report, and they race to get in before everyone else does. An earnings report disappoints Wall Street and the stock drops 10% in after-hours trading, which keeps investors up all night in a panic and they immediately sell first thing in the morning.

While psychology ends up being the primary driver for decisions for individual investors, the assets you buy should not be an emotional decision. This is why it is imperative for investors to create a strategy with specific rules that they can stick to.

However, the media loves to drive this emotion. There are television stations dedicated to the up-to-the-minute movements in the market, rumors and other current events. This coverage keeps viewers glued to the television, which drives advertising revenue.

Notice, though, the pundits that report financial news are not always professional investors. Furthermore, you never get straight answers. The media will interview multiple experts about current economic conditions and how to play the stock market, and every “expert” will contradict the previous expert’s recommendation. As a result, viewers over think and begin to worry about the worst case scenario and frantically check their portfolio to watch their positions move tick by tick.

The market and the future is unpredictable, so all the media is doing is creating panic or excitement that drives the short-term movements. Ironically, the short-term movements in the market have very little or no relevance to long term investing. The only thing that matters to investors is that over time the stock market increases in value.

The media may provide relevant information to the short-term day trader who is trying to capitalize on investor psychology, but for the most part very little should cause a long term investor to act today. Therefore, to avoid letting the news influence your investing decision, ignore media influence as much as possible, remind yourself why you purchased the equity in the first place and ask if those same reasons still exist.

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Millionaire Money Habits
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