There are many barriers keeping newer investors from making significant profits in the stock market.  Often, a lack of knowledge in the expertise of trading will play a part in the lack of success.  Emotions are another important factor.   However, with practice and strategy, you can prove successful at investing.

The strategy, “buy what you know” certainly rings true when it comes to purchasing companies and sectors with which you are familiar.  However, this adage also extends to your own trading style and personality. 

The barriers to investment success can be any characteristic that holds you back.  By understanding these barriers, you can remove them and be more successful.  If you fail to overcome these barriers, you will see yourself making the same investment mistakes over and over again.  These can be different for each investor, though there are some common ones.

Eliminating emotions

Emotion often clouds an investor’s judgment.  Fear and greed are common culprits, and these emotions lead many savvy investors into making poor investment decisions.  All investors know that it is best to sell high and buy low.  However, many investors are hesitant to sell their big winners or afraid to buy stocks that seem out of favor.  When they hold onto a stock too long and it falls again, they are afraid to dump the shares, holding onto the hope that they will once again rise in value.  They may also hold onto losing stocks until the company goes bankrupt.  With their money tied up in losing stocks, they are not able to earn profits, and their portfolios continue to hemorrhage money.

The more you know, the more you profit

Lack of knowledge is also a big culprit in unsuccessful portfolios.  There is much more to the stock market than buying low and selling high.  You have to understand how the market functions, and what causes prices to go up or down.  Other investors get too cocky and take unnecessary risks, which cloud their rational judgment.

Many of these investors will be drawn to strong performers, without even looking to see if the growth is sustainable.  They also tend to put too much money into one investment, and they fail to diversify their portfolio sufficiently against risk.  Or they may avoid certain types of investments, such as bonds, because they do not understand them.  Knowledge equals money in the stock market, and the more you know, the better you can invest.

Zoom out your perspective

Another pitfall of new investors is that they fail to see the big picture.  They make all of their investment decisions based on short-term goals and fail to think of the future.  This makes it easier for them to be swayed by market fluctuations.  They get overexcited when the market or a particular stock does well, and they panic if the market does poorly, making it difficult to make solid, profitable long term decisions.

Removing the barriers to your success

There are several strategies you can implement to remove the barriers that are keeping you from investing wisely: 

• Learn to monitor your own performance, allowing you to see what is working and what is not.  You can usually identify your own strengths and weaknesses when it comes to investing. 

• Determine what you want to change and take steps to implement the changes.  Do you have a difficult time selling a stock when the price starts to drop?  Are you hesitant to enter into a trade that you know has the right fundamentals?  Evaluating your trading performance will allow you to understand what you need to change in your trading style.   

• Stay focused on these improvements you want to make in your trading personality, instead of letting them fall to the wayside.  For example, discover how you deal with losses, and find more effective ways of managing them.  Losses are always going to happen at some point, and the greater skill you have at addressing the issues, the more your portfolio will prosper. 

• Pick an investment strategy that works for you and stick with it to help you gain confidence.  You can always add new strategies as you become more familiar with the market.  However, when you start with one strategy that is effective and consistent, you can build your foundation. 

• Learn to think about the risk-reward ratio for each investment, and start to think in probabilities.  Evaluating the finances is a critical part to learning to be objective.  This is the quickest way of eliminating the problems of emotions when it relates to trading.  Understanding the financial fundamentals makes you a better trader.  Often times, the greatest trading adversary we have is ourselves.  Those who are the most successful at trading have a deep grasp of their strengths, weaknesses, and strategies.  When you strengthen your trading personality based upon fundamentals, you increase the power of your portfolio as well.