One of the things about investing knowledge is that as it grows, the investor increasingly learns to differentiate between concepts that may previously have been lumped together.

Here are three things all smart investors know:

Are you dollar-cost averaging, or watering your weeds?

Many investors learn pretty quickly that they should buy when the market declines. If they can look past the discomfort, stocks get cheaper during a market wobble. Yet smart investors also make sure that they invest their capital wisely – regardless of the opportunity to ‘average down’ the price of their portfolio.

Averaging down your biggest loser often results in allocating additional capital to a poor business. If you spot a good opportunity to average down, also ask “is this the best place I can allocate my capital right now?

Investors who topped up companies like Santos Ltd (ASX: STO) recently may have been watering their weeds. Although prices are much lower compared to 2014 and before, the company’s situation has deteriorated meaningfully with high debt, more shares on issue, and weaker oil prices. Investors should be careful not to allocate further capital to businesses with a higher chance of underperforming – no matter how ‘cheap’ – as this will just drag down your returns even further.

Are you managing your money…or micromanaging it?

You should treat your portfolio like a garden. Occasionally it needs a trim here, some fertiliser there – but if you uproot your shrubs every 12-18 months you’ll never get a garden at all. Many ‘long-term’ investors uproot their shrubs semi-regularly, lacking the ability to look through the occasional poor ‘weather’ (results) to see the gains at the end.

Flight Centre Travel Group Ltd (ASX: FLT) is a good example of this, with the recent sell-off focusing on a tiny loss of market share to competitors like Webjet Limited (ASX: WEB). Investors have overlooked its long-term track record, well aligned management (who built that track record), great balance sheet, and ability to repeatedly generate attractive returns.

Are you confusing long-term trends with short-term performance?

Investors might reasonably have bought a company like Sonic Healthcare Limited (ASX: SHL) or Japara Healthcare Ltd (ASX: JHC) to take advantage of an ageing population, which will require more scans and greater aged care resources over the long term. Yet a long-term trend doesn’t mean that all businesses will benefit equally. At best, something like an ageing population might account for a couple of percent in earnings growth per annum – which makes the expansion-by-acquisition strategy of Sonic and Japara far more relevant.

Don’t get lulled into the thinking that strong tailwinds equate to a winning business idea. They’re great to have and you should seek them out where you can, but alone they’re not an investment case. Other things like the company’s strategy (its day-to-day operations), its management, and its financial position are far more important.

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Motley Fool contributor Sean O'Neill owns shares of Flight Centre Travel Group Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.