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Common Mistakes Made by Investors And How To Avoid Them

Mistakes are part of the game. But as an investor, you should do your best to avoid high-cost mistakes - here are Common Mistakes Made by Investors

All Content on this site is information of a general nature and does not address the circumstances of any particular individual or entity. The information in this content is not advice on financial, investment, tax or other matters. You should always consult your own financial, legal, tax, accounting, or similar advisors.

Common Mistakes Made by Investors

If somebody came up to me and said they don’t make mistakes when investing,  I would probably have a big smile.

Out of every investing book, website, “plan”, or anything else, we still do not have a perfect algorithm on how to invest flawlessly all of the time. Investing is a gamble, and everything should be recognized as a gamble, no matter the odds.

Mistakes are inevitable with investing.

Even more, investing is such an emotional and mental drain, especially when you have been in the market for a long time and the money is either not what you expected or you are quickly losing.

The Most Common Investment Mistakes You Can Avoid

A lot of times, these mistakes made by investors occur more than once. Most investors have actually been making the same mistakes for a long, long time now; these mistakes can go all the way back to when the markets opened.

Unfortunately, most of these mistakes made in the past and present will be carried out to the future. The first step in understanding these mistakes is to actually know about them and acknowledge them. Then, apply them to your investment strategy and gain!

Enough talking about it, let’s dive right into it!

1. Not Understanding What You Purchase

Warren Buffett and loads of other veterans in the stock market claim that buying shares of something you don’t quite understand is a good way to fall on your sword. Part of the reason Ashton Kutcher does pretty well at funding technology companies and startups is because he understands and appreciates technology.

So to make it clear, you should not invest in a company if you don’t understand and “get” their business plan and models.

A good idea and a smart way to avoid this is by establishing a portfolio that varies with exchange-traded funds or by mutual funds; choosing to purchase stocks in a specific company can be rewarding, but only if you understand the company and their business plan/market.

2. Too Eager

When Investing, patience is about as essential as it gets. At the same time, when you make decisions with the wrong frame of mind or with eagerness, you are destined to get a lot of problems. One thing that puts a few investors ahead of the others is knowing that you won’t make a fortune overnight, and you cannot expect to be 100% profitable instantly.

Investing, along with a lot of aspects of life, doesn't always plan out as you want it to. Even diamonds are dirty when they are first pulled out.

Patience is a key

If you made a list of essentials for investing, patience should be one of the first things. There are a lot of cases when a stock invested in seemed to be dull and not worth it at first, but after a while became very valuable; and just think, this is not a rare occurrence.

It happens a lot! So don’t feel awful or sick when you know an investment you made was a good one but doesn’t look amazing at first. Hold on! Let the cycle of-of a manager’s strategy plan follow through before you get upset. These cycles can go on for long or little amounts of time.

Take for example recessions. We don’t really identify a situation as a “recession” until after it happens. The old story of the Turtle and the Hare Racing still applies! A progressive return might be slow, but it will no doubt beat out any of the irrational decisions made in a wrong frame of mind. Keeping our “eye on the prize” and having realistic goals for our portfolios and strategies will be more beneficial than expecting magic and luck to happen.

3. Bad Planning/No Planning

Not knowing your plans and where you want to go to is about as bad as shooting yourself in the foot. Here’s how we can fix this:

Make a plan that identifies the list below:

  • Future Plans – What do you plan to do? Have an excess of retirement funds or maybe even save up enough money to own your own business in later years?
  • Risks – Do you think you are a conservative investor, moderate, or aggressive investor? If you are planning on saving for retirement, being an aggressive investor is probably not the best approach. In each of the cases. you can choose your own preference  – investing in defensive stocks (conservative investor), dividend stocks (moderate) or blue-chip stocks if you attract to risk.
  • Successes – You need to define what you think is a “job well done” or what is not “good enough”. These help to reward yourself and keep on track.
  • Distribution of Money – Where does your money go? Which market? What stocks? Or maybe considering alternative investments is the right thing to do? Making sure you know where your money is going and what all you want/need to put your money in is critical. Make sure if you do percentages, which percent goes where. Knowing where to put your money is a crucial part. The asset allocation helps astronomically.
  • Dispersion – Don’t stick to one category within a subject. Make sure your money is diversified amongst different categories.

A good plan is almost like an insurance for yourself by clearly identifying your strategy, which is a savior for when the market is not so good.


Keep your future plans in mind. Don’t have the mind of a daytrader (and if you do, better to start with some technical analysis articles before).

You are an investor, looking to increase your wealth for any number of reasons. Not trying to guess the market to keep your head above water.

Think long term.

4. Falling in Love with a Company

Just because a stock provided good returns earlier does not mean you should feel an emotional connection to buy it! Keep the emotions out of the markets! If you buy an investment, it shoots up 30% and you feel amazing, that’s great!

However, that doesn’t mean you should instantly look for that stock every time you want to invest. Most of the time, you end up getting yourself beat when you have an emotional approach. Always remember why you purchase stocks: to make money consistently. Once you identify this problem, your returns and strategy will skyrocket upward, making you more successful.

5. Always Wanting to Jump the Gun

A lot of times people get way too eager and feel like they need to constantly change their positions and rethink their strategy. If something changes, somebody tells them differently, they hear the news or anything else they are not patient enough to stick through and believe in themselves and their strategy.

Aside from the problem of denying your strategy, you also can have a pretty hefty bill in the end due to processing fees and other payments taken from the brokerage. Also, when taxes come around, this can be a huge headache!

What’s the point in gaining profit if you are just having to pay off all of your transaction fees (excluding taxes in this scenario), and giving your well-thought strategy a “kick in the shin” from all of these payments? Nothing! It’s pointless! It’s basically, as the expression goes, “six up and half a dozen down”.


If we do include the taxes in the scenario, can you imagine a headache you would have sorted that out?

All of the transactions from buying and selling all different types of stocks and other investments doing taxes? No thank you! Save your future self a headache and some time by taking it easy, not being too eager, and just let your strategy do its’ thing!

Let’s keep the markets “black and white”. Don’t let your fears and opinions/feelings dictate what you buy, sell, how long you hold it, how you think about it, etc… Try your best to think rationally! It is human nature to try and justify a bad decision made.

For example:

Imagine if a photographer bought a Samsung.

Then, the next day, they bought the equivalent of their Samsung in a Canon form. If one camera outperforms the other in something, the photographer might think “I knew this would happen. I am so glad I made the investment in both”; but if they are equal in performance, the photographer might think “I knew these cameras were the same, and there would be no point in buying both”.

Don’t try and justify your reactions. Use your strategy, let it work according to the plan, stay calm, and stay positive!

6. Take the Wins

A lot of times, we want to sell the bad picks and then proceed to buy what’s left. a lot of it is just natural for us. If you bought a stock, and it gains a good bit in price, take some of the rewards from that.

Don’t try to just sell the bad picks and then buy the “good” ones all the time. Take some of the profit, don’t let your love for whatever the stock is just sitting there.

7. Unrealistic Expectations

This one is hard. We think about saving, providing, paying bills, buying a few of those “wants”, and we invest… shouldn’t everything line up and our investments pay off? Well, no. Investing won’t make us rich overnight. We are especially let down when we aren’t rich even after managers of our investments

Forget your dreams

Investing won’t make us rich overnight. We are especially let down when we aren’t rich even after managers of our investments promise outsized returns. You can’t win everything. You probably won’t be the next hedge fund manager news companies ask about for stock picks; however, keeping the end goal in mind and not having expectations above and beyond will definitely help you.

Don’t listen to the hype about some penny stock that soars up in value or any person on the internet that claims to be above everybody else. Keep it real!

8. Recommendations by Friends and Coworkers

“Hey, I am looking for some good stocks to invest in. You know of any?”

“Well, ____ seems to be doing well for me. Also ___”

“Oh, okay! Thanks, let me go check it out!”

Then you go to “check it out” and find out you complete your order based on the sole reason your friend has shares in it. This strategy is not good. While it isn’t bad every single time, the majority of the time these don’t play out well.

You have a friend that knows a lot about stocks?

Awesome! Collaborate! Just don’t listen to everything this person says and buy shares with blind eyes. Investing should be down thoroughly, not just scratching the surface.

Here’s The Bottom Line

These simple mistakes can be acknowledged fairly easily, but a lot of times we forget the basics. It’s not the end of the world! Realizing your mistakes now can greatly impact your decisions in the future.

Identifying and fixing these will cause your returns to increase dramatically, and isn’t that the whole point of investing?

The Smart Investor content is intended to be used and must be used for informational purposes only. We are not an investment advisor and you should NOT rely on this information to make investment decisions .