11 Common Mistakes Investors Make and How to Avoid Them

"Buy with logic, sell with logic. Never emotion."
Common Mistakes Investors Make

“Buy with logic, sell with logic. Never emotion.”

Everyone has heard the phrase “buy low, sell high,” but for many investors it turns into “I bought high, and sold low.”  Don’t let that be you! Here are the most common mistakes that even the top investors can make.

1.) Buying too high

Many investors, especially young ones, get excited about a stock that they think will perform well.  However, before you know it, it drops 10% and they just lost money.

To solve this common low blow, simply complete your “due diligence” on the stock to see if it’s worth buying at its current price.  Look over the financials and see if the company is in a good position to succeed in the future. If you don’t know how to do this, I strongly recommend reading The Intelligent Investor and checking out some financial education sources like Jeremy’s Financial Education channel or Phil Town’s Rule One Investing.

2.) Selling out of fear or emotion

The price drops and suddenly your whole outlook on the stock goes with it… If you were confident in your research before buying the stock and you believe it’s a good investment, short term fluctuations shouldn’t scare you away.  In fact, it should make you want to buy it more!

Don’t get caught up with the masses when it comes to buying and selling because you’ll end up getting trampled.  You should only sell if you believe there is a better place for those funds or the fundamentals of the company have deteriorated.

3.) Getting addicted/manipulated by the headlines


*opens article

…If a meteor hits earth and takes out company HQ.

That is an extreme example but don’t be fooled or manipulated by the headlines.  Many articles are trying to get the price to move a certain direction or are simply based on shady/not-so-reliable info.  Be a skeptic and be in it for the long haul! Don’t let one little piece of news get in your head and cause you to make an impulse decision.

4.) Going all in – Trying to hit a homerun

Some people have landed massive pay days by going all in (like this guy) while others have lost their last dime (like this guy) … It’s just too risky.  When it comes to investing, it’s not the best practice to rely on luck.  Instead rely on logic! Do your homework, find what a good price is, and make your decision.

5.) Being over-diversified

You’ve heard it said before: “it’s all about diversification to mitigate risk.” In a lot of respects, yes that’s true and good.  However, some people get carried away with this and end up buying far too many individual stocks.  This can prove to be unwise as your attention and abilities to research will be spread too thin.

Most mainstream “expert investors” recommend starting out with as many as 5-10 stocks in various sectors.  However, depending on the amount of time you may have on your hands, you may be able to invest in more or less.  It’s good to maintain a certain level of diversification, but don’t overdo it.

6.) Using past performance as the indicator of future performance

Benjamin Graham, in his book The Intelligent Investor, talks about this a lot.  Many people think that just because a company did great last year, they’ll do just as good, if not better, next year.  Unfortunately, that theory leads many to pay too much for the stock and make false assumptions about it.

While past performance has its place in future financial predictions, it would be wiser for you to investigate on why earnings are up and the company has performed well.  Getting more knowledge on the matter will give you more information that would either support a decision to buy or a decision to sell.

7.) Trading too much

Unless you’re a legit trader or a day trader, constantly trading can have a damaging effect on your portfolio.  Depending upon your broker, trading fees/commissions can eat into your profits or add to your losses.  Be smart about your trades.

Commissions and fees can end up costing you a lot. For a great comparison of online brokers, check out this in depth review by reviews.com! In this review, their expert team compares the pros and cons of each online brokerage. This will help you decide which one works best for what you’re looking for!

Furthermore, trading too much can cause you to lose patience and become paranoid. Be sure about the stock before you buy it! And be sure about the stock before you sell it!

8.) Not knowing when to sell

It always looks great and feels great when you see that stock you’ve bought going up and up and up.  Then you start getting attached to it and you don’t want to sell.  This is a dangerous thing to get caught up in! Just like the 2001 dot-com bubble.

There comes to be a point where a stock goes up so much in value that it becomes overpriced.  It climbs all the way up to the top of the mountain that once appeared limitless, and before you know it, the stock jumps right off the edge.  Then it tumbles all the way down into the valley, where you should be waiting to buy and walk it back up the mountain!

If the stock becomes overpriced, you might want to consider selling before it comes back down.  From which you can buy in again!

9.) Trading on speculation

This is a mistake that can cost you big time.  Most penny stocks are largely traded on sheer speculation, which is why they’re so risky! It’s more like gambling if anything.

Trading on speculation is usually where you hear people say, “if this big thing happens this is going to soar,” all the while basically every indicator tells you it’s a bad investment and bad company! If it takes one big event for a stock to pop, it’s probably trash to begin with.  Don’t get burned.

10.) Investing when you can’t afford it

It is great to invest! However, if you have other debts and financial obligations tying you up, you may want to clean the closet before you begin! Especially in your debts are credit cards or other high interest loans.  Read my post on this to see if it’s worth it for you to invest in your current situation!

11.) Not investing at all

If you are in a good financial position and you don’t invest, you could be hurting your chances at achieving financial freedom (remember the 7 rules!). Investing is the means by which you make your money work for you.  All you do is send it to the right employer!

If you’re scared or too nervous to invest, start doing some studying and reading to help you! Check out books like The Intelligent Investor or The Dhandho Investor: The Low-Risk Value Method to High Returns or The Richest Man in Babylon. Or if you hate reading, check out some good YouTube channels like the ones I mentioned before.

You’d be shocked about how much free information is out there.  All you have to do is look! Investing really isn’t that complicated and doesn’t take too much skill to get started.  All you really need is common sense, logic, good information and some research to make a good investment!

For more great books to read check out The Knowledge Shop.

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Cheers & God Bless!


DISCLAIMER: This post contains affiliate links of the products that I recommend, which means if you purchase products through the link, I’ll receive a small commission. This helps support the blog and the time and effort put into it. Thank you for the support!!

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2 Comments on this post.

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  • Anonymous
    26 August 2017 at 4:33 pm

    I use to make the typical rookie mistakes, bought on headlines and high price targets and that made me lose a lot, but it all taught me a lesson. Now i read sec filings quarterly and annually. I use social media to understand sentiment towards the industry or business. And I use what i learned in business school to understand he workings of the business at a basic level. One tip i suggest is to research the leadership. CEO experience and decisions within the business, and the board. You either love the company or you don’t. If you don’t absolutely love it don’t buy.

    Leave a Reply
    • Matt
      26 August 2017 at 4:41 pm

      That’s a great tip! Totally agree with that! Sometimes we learn our best lessons from our mistakes although the stock market isn’t too forgiving. Thank you for commenting and sharing your experience! I think what you’ve learned can definitely help other investors along their journey. -Matt

      Leave a Reply

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