4 Common Investing Mistakes and How to Avoid Them

Investing can be a serious business, but sometimes we stumble upon some truly laughable blunders (depending on your perspective). From following questionable advice to making impulsive decisions, investors have been known to make some hilarious mistakes along the way. In this article, we'll explore four common investing mistakes and provide tips on how to steer clear of them. ?

FEAR OF MISSING OUT (FOMO) This is probably the most common mistake novice investors make and it’s usually motivated by greed. Imagine, you are talking to a good friend, and he tells you about a friend of friend who made 200% in just under 2 months. The next day you speak to a different friend, and he tells you a similar story. Depending on the person, and their attitudes towards money and risk they will either pass on it because they believe in the adage, “if it’s good to be true, it probably is.” Or they jump headfirst into the water excited at the prospect of making easy money. ?

Which one do you think works most of the time? ?

The Lesson: Investing based on FOMO can lead to disastrous results. Instead, take the time to understand the investment thoroughly, evaluate its potential risks, and make informed decisions. Remember, just because everyone else is jumping on the bandwagon doesn't mean it's the right move for you.?

THE STOCK WHISPERER: Ever met that person who claims to have a sixth sense when it comes to picking stocks? They're always convinced they've discovered the next big thing and can't wait to share their incredible insight with you. Armed with a crystal ball and a lucky charm, they invest their life savings in a company they heard about from someone at the water cooler?

The Lesson: While it's great to do your research and stay informed, investing based on superstition or unfounded rumors is a recipe for disaster. Instead, rely on solid financial analysis, consult professionals, and diversify your portfolio to mitigate risks. Also keep in mind that you are buying businesses, not stocks. You should be asking yourself, is this a great business, with potential growth and is it trading at a reasonable price? If the answer is no to all of them, then it might be a pass. ?

THE IMPATIENT GAMBLER: Imagine a person sitting in front of a computer, eyes bloodshot from staring at the stock market screen all night long. They're convinced that buying and selling stocks every hour is the path to quick riches. They resemble a squirrel on a caffeine high, clicking furiously while chanting "To the moon!". ?

Years ago, I recommended buying a company that had a very long track record of paying regular and increasing dividends and had the potential to appreciate over the next ten years. The individual found this, “too boring” and since the potential upside was much less than the 30% everyone else seemed to be making, he ended up passing on it.?

The Lesson: Successful investing requires patience and a long-term perspective. Trying to time the market by constantly buying and selling stocks can lead to emotional exhaustion and poor decision-making. Instead, focus on a well-thought-out investment plan, set clear goals, and resist the urge to act impulsively. Remember, Rome wasn't built in a day, and neither will your investment portfolio.?

THE DIY DISASTER: Meet the person who considers themselves a financial genius and decides to go all-in without seeking any professional advice. Armed with a smartphone and a DIY investment app, they dive headfirst into a complex financial world they don't fully understand. Cue the chaotic scene of them juggling stacks of financial reports while feeling very confident when the markets are up and extremely humble when the markets inevitably drop.

The Lesson: Investing without professional guidance can be risky if you don’t know what you’re doing. Also, cheaper isn’t always better. I have seen countless individuals choose a cheap strategy over a quality strategy only to watch it derail their life goals. Seek advice from financial advisors who can help tailor a strategy to your goals and risk tolerance. Don't be afraid to ask for help, as their expertise can save you from costly mistakes. One or two costly mistakes can create huge dents in your portfolio, so it’s important to stay diversified. ?

Conclusion: Investing can be a roller coaster ride, but it's important to maintain a sense of humor and learn from our mistakes. Avoid falling prey to FOMO, superstitions, impulsive decisions, and the DIY trap. Instead, strive for informed decisions, long-term thinking, patience, and seeking professional advice when needed. And if you ever feel overwhelmed, just take a step back and remember that investing is a marathon, not a sprint.

Happy Planning.