Common Investing Mistakes

Of course we all make investing mistakes. Whether it’s buying a stock based on an eavesdropped conversation at dinner last night or making grossly inaccurate choices with a business transaction, we’ve all had our doozies.

Have you ever stopped to think that maybe these bad choices have something in common? That you’re making the same mistakes each time without knowing it?

Here’s a smattering of 5 (out of 10) common mistakes that people make when it comes to investing as presented by MoneyNing:

Blinded by Reward
Hearing others speak of amazing dividends, huge returns, and immense profit taking can leave us chomping at the bit to jump into an investment without considering the risks involved.

I don’t care what anyone claims. The larger the reward, the larger the risk. I think the mutual fund industry has hurt many an investor because of wild return on investment figures. Nobody gets above average returns indefinitely without risk.

Not waiting out a downturn in the economy or assuming a stock has seen its prime and selling it too soon, even though it’s a well-known and stable investment, could leave you with regrets.

I would also add that jumping in too soon is just as bad a culprit. We’re impatient on both ends of the investment—getting in and getting out.

Influence of the Masses
When everyone around you is telling you how great a particular investment is and how much money they are making off of it, it can be difficult to ignore the opportunity.

Do you remember about 10 years ago when stock forums were driving stock prices? Someone would jump into a no name, low priced stock and pump it up with fake news and earnings. Pretty soon, people were buying which would inevitably drive up the price.

I had a friend at the time who would email me throughout the day (at work no less) and tell me what a fool I was for not buying this stock. “This is the big one!” I didn’t have a hard time ignoring him especially after the forum posters were arrested.

It’s so easy to get caught up in the hype. Remember, scarcity is a primary marketing tactic. If someone can make you feel left out (or the potential to be left out), there’s a higher chance you’ll take the bait.

Taking Investing Personally
Making investment decisions based upon personal preferences or because you’re angry about losses may only leave you angrier because you didn’t base your decision on factual information and sound investing practices.

I would also like to add a note about people who watch their investments daily, even hourly. I had a boss once who would call me into his office several times a day to show me how his portfolio was doing. If it was good, he was in a great mood. If it was bad, he’d walk around and claim imminent disaster was upon us.

Of course we want our investments to go up. Just like we want our favorite sports teams to win every game. But what happens when they lose (and we know it’s inevitable)?

Do you tie your joy to your investment performance? Money doesn’t care whether it’s getting a good or bad return. It’s like riding a roller coaster with a dummy. Not very fun.

Finally, I would like to add another investing mistake—greed.

Greed is more than being blinded by reward. It’s a clear obsession with getting more to the detriment of everything and everyone else. It’s throwing money at investments in the hopes that something will eventually stick. It’s tying your whole self into investment performance, good or bad.

In short, and speaking from experience, greed will rob you of yourself and leave you holding an empty bag.

Read about more common investing mistakes at MoneyNing.

2 Responses to “Common Investing Mistakes”

  1. James Fowlkes October 28, 2010 at 9:04 am #

    It is amazing how twisted the reward/risk thing is in mainstream media.
    People invest based on past performance when the real indicator of best future performance is,…. wait for it,… low expense ratio!! I wish the whole world knew this!

  2. Jerret October 28, 2010 at 9:27 pm #

    Yep. Unfortunately, people don’t want to take the time to understand their investments. That’s why I say invest in yourself through your own business.