Regret Over Missed Opportunities Could Cost You
You may be familiar with the theme. A neighbor, a friend, or a colleague tells you about a company he’s investing in that is expected to be the next Amazon. Because you are not one to make rash decisions, you hold off, choosing instead to see how it does for a period of time.
Over the next nine months, you watch as the share price steadily rises and before you know it, the stock has doubled in value.
You are overcome by a range of emotions: frustration, anger, self-pity, resentment, and regret. That was your big score, and you missed it. You tell yourself you’re not going to let it happen again.
That could actually be a big mistake.
If You Didn’t Understand It, Don’t View It as a Lost Opportunity
The fact is, you avoided one of the biggest investment mistakes, which is to invest in something you personally know little or nothing about. While that may seem like common sense, people do it all the time, but you will not likely see them listed among the world’s greatest investors who know better.
Great investors such as Warren Buffett, Peter Lynch, and John Templeton are united by the principle that you should only invest in what you know, and what you know should be based on extensive research. To do otherwise can be akin to gambling.
Emotions and Investing Don’t Mix Well
A bigger mistake would be to allow your natural emotional reaction to the missed opportunity to influence future decisions. Emotion-based investment decisions can frequently lead to bad outcomes. They are what drive people to buy near stock market tops or sell in panic near stock market bottoms.
Greed and fear are powerful emotions, but regret can be the most damaging, especially if it leads to trying to “make up” for a missed opportunity by taking on more risk in another rash, short-sighted investment decision.
Even the very best investors miss out on opportunities. Some missed opportunities are mistakes, while others are intentional. Warren Buffett laments that he passed on the opportunity to invest early on in Amazon and Google. He intentionally passed on the opportunities because he didn’t understand their business models and how they made money. With both Amazon and Google stock now trading above $1000 a share, Buffett admits he regrets the missed opportunity, but he is fine with it.
That’s because the other thing that Buffett knows is there will always be other opportunities.
Stay Focused on What’s Really Important
The takeaway for average investors is to learn how to let it go and focus instead on the next opportunity. Better yet, stay focused on what’s really important: your own long-term goals.
As an investor, you can inoculate yourself against your emotions and reduce bad investment decisions by strictly adhering to a well-conceived investment strategy that is based on your long-term objectives. In terms of long-term investment performance, patience and discipline will almost always win out over emotionally-driven investment decisions.
The Breakdown
- Missed investment opportunities can trigger harmful emotions, such as anger, resentment, and regret.
- Investing in things you don’t understand is akin to gambling—you should be prepared to lose your money.
- Allowing your emotions to influence your investment decisions frequently leads to bad outcomes.
- Regret can be a dangerous emotion when it leads to taking on more risk to “make up” for a missed opportunity.
- For the best long-term investment performance, stick with a sound long-term investment strategy based on your own objectives.
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