62 comments on “5 Investing Mistakes That Are Easy to Make

  1. You mentioned my mistake of not having an exit plan. When I first started investing in stocks, I really didn’t have a plan. I rode Worldcom all the way from $41 down to bankruptcy. I even bought more at $5 thinking it was going to come back! You need to set a target price that if the stock hits that price, you sell. This target should move along with the stock on the way up as well, so that you can experience a gain if the stock rises in price and then trends down.
    Jon @ MoneySmartGuides recently posted..Many American’s Taking Loans From 401kMy Profile

    • Ah, WorldCom! A lot of people got caught up with them and ended in the same situation unfortunately. Great point on having a target price, which adjusts on the way up, on a stock. I do that on a percentage basis and is a great way to keep the emotions separate from the decision.

    • That it is DC. I have been caught by that myself too many times to count and I hopefully have learned my lesson. It’s much more preferable to lose 20% as opposed to 80%

  2. I think I have made each of those mistakes at least once. I also rode MCI Worldcom down into the bankruptcy. A lot of this has to do with emotional investing. I wrote a post on that recently (unfortunately I can’t bring it up on comment luv) which might be worth a read. I wrote about how emotional investing is not a good strategy and why it’s wise to separate your emotions from your investing and stick to the strategy you’ve outlined for yourself.
    Jose recently posted..Estate Planning – Our Return From MiamiMy Profile

    • Another WorldCom casualty, sorry to hear that. I could not agree more about keeping those emotions separate when investing. I wrote a post about it as well, I think it’s actually linked to in this post. :) Those emotions can really ruin a strategy very quickly.

    • Lol! I know Joe, it makes absolutely no sense to me at all. My favorite part was getting yelled at by clients when they’d get upset because we did not call them to tell them to do something. I guess the term self directed is a confusing one to many.

    • That can be a tricky one to avoid as you never know how well informed that friend is on a stock. I have made that mistake in the past myself, but have since moved to doing my own research.

    • Yes I did Adam! That stop loss rule I have is a great way to keep those emotions separate. It can be tempting to disregard it at times, but I’d much rather lose 5% as opposed to 40-50% or more.

    • Thanks Roger! I could not agree more. I have written pieces on most, if not all, of those areas that are needed to be focused on. They all play a vital part in having a sound overall strategy/plan.

    • Very true Pauline, though that is why balance is needed. I’ve seen extremes of both ends and neither are good, which is why I suggest checking up on things once a month/quarter. If you never check up on it then how can someone know what’s going on?

    • I have as well MFIJ, thus the reason for my hard sell out at a certain loss point strategy. Before I had that it was just left to emotion or however I felt about the given stock. Dividend cuts could be a very good thing to add as well to the idea as that can generally mean something is awry.

  3. Since I have just started investing, I haven’t really made any noticeable mistakes. I did invest in a fund that had a high expense ratio before I knew about expense ratios, but I moved the money into another fund after I found out. Sorry to hear about the Groupon buy. That stock made me nervous ever since they went public. Their accounting was horrid.
    Grayson @ Debt RoundUp recently posted..Moving Up: Rent Out or Sell the Old PropertyMy Profile

    • That’s awesome Grayson, though those expense fees can be easy to overlook. I still can’t believe the Groupon call. I knew something was amiss about them and went against my better judgment. I am just glad I could get out when I did. I would seriously be hating myself if I were still sitting with it now.

    • It can be difficult to make that decision, thus why I have a hard stop loss in place to remove that stress from me. Investing in index funds is a great way to help mitigate that.

  4. I’ve made all of these mistakes minus the checking my account once a year. I can’t believe I’m about to say this but I believe it’s imperative that all investors feel the pain of these mistakes early on in their careers on a small scale so they learn to NEVER do them again once their portfolios are much larger. It’s like the old saying goes “Some lessons have to be lived in order to be understood.”
    Brick By Brick Investing | Marvin recently posted..What Is A Cash ISA?My Profile

    • It is the simplest way Edward, thus why I do it 90% or more of the time. I mainly use limits if I am looking to sell. The little bit more I might pay on the buy really does not amount to much in the long run.

  5. All great points that make my financial advisor heart smile! It’s funny how people can go to extremes – checking their investment multiple times each day to never. There has to be a happy medium. :) One of biggest misconceptions people have about financial advisors is that they do it all for you. Well, any advisor who says they will take care of everything and you don’t need to worry about thing – is not the person you should hire. A good advisors find solutions, shows you the pros and cons in relation to your specific situation, makes a recommendation then ultimately lets you decide. A person who gets to throw tantrums and smash things should also not be your only source of investment information.
    Shannon Ryan @ The Heavy Purse recently posted..Children and Money: Don’t Turn It into a Taboo Topic, Part IIMy Profile

    • Thanks Shannon! I could not agree more in terms of having a happy medium. I never understand the extremes that some will take with their money. There is a happy medium to have and it’s not al that difficult to find. Thank you as well for your insight from an advisor’s perspective. I agree that one who says they’ll take care of everything is not one you should go with. I view an advisor as the expert who has the knowledge (hopefully) to be able to give an objective perspective that the client can use to make an informed decision. As I am sure you’re well aware of, it’s amazing the number of people who use one over the top source for their investment education/information.

  6. I am a passive investor so I have not bought or sold much. I just out $x every month into my portfolio which I rebalance once a year, that is as much as I do right now. I am tipping my toes into dividend investing, but I am taking it very slow.

    The biggest mistake I did was actually not starting sooner. I was “afraid” of investing. I didn’t understand it and was horrified that I will lose all the money. I should have started with a target date fund or something and just started to invest. I lost my first 3 yrs of working with $0 in my 401k.
    Suba recently posted..How much house can I afford? You got to be kidding me!My Profile

    • That’s a great approach to take Suba, one that I follow to a certain extent. I’ll log in and check things out maybe once a week or so and do my rebalancing annually. Sure, it’s not “sexy”, but slow and steady wins the race in my opinion.

      A lot of people are in the same boat in terms of not starting sooner, I know I was. Time is the greenhouse to growing our money, but that “fear” can hold us back at times.

    • I know the feeling Kim, I started too late myself and gave up the free money. Sadly much of that money was spent on useless things I did not need. The important thing is to realize that and doing what you can to invest more now.

    • The problem with Groupon was that there was some very serious questions about their accounting and their business model. I think their concept is a good one, but some of their dealings have been shady. I am glad got out to, I don’t like taking a beating like that. :)

  7. I think the only one of these I’m not guilty of is logging into your account once a year. I log in to check the status of everything almost obsessively!

    Buying a stock based on a tip from someone you know is something I did a lot when I first started out. It wasn’t until I took my first big loss that I decided I shouldn’t trust my money to someone elses ideas & I started doing a lot of research before buying anything.
    The First Million is the Hardest recently posted..Five Dumb Ways To Spend Your Tax RefundMy Profile

    • It can be tempting to listen to those tips, especially when you’re starting out investing. I know I did it in the past. Putting in that research is the real way, I have learned, to be able to make a much better informed decision in regards to investing.

  8. My biggest investment mistake was buying because of what people were saying on Yahoo forums, really good place to get investing advice right? I bought a fertilizer stock that had been rocketing for a while near it’s peak. I sold at a slight loss, but continued to make the same mistake. Now I prefer ETFs because for some reason I can sleep better.
    Justin@TheFrugalPath recently posted..Online Funerals: Stream Your GoodbyesMy Profile

    • Gotta love the Yahoo Finance message boards. ;) I go there when I want a laugh, so glad you were able you were able to get out with a slight loss. It’s all about what helps you sleep at night, so it’s good you’ve found that with some ETFs.

    • Thanks Jim! I agree that being greedy can be a big mistake as well and one that I’ve made too many times to care to remember. You’re right, I’d much rather make money as opposed to losing it.

    • I would completely agree Brian. Options can be a good tool to use, but should only be done with education. I’ve seen some retail investors get themselves in a real pickle by doing something they really should not be.

  9. Great post
    I don’t invest in stocks on my own but I would love to but the fear to get over being new is what is hard. I don’t know where to start. I do know I’d likely be the person who checks their account quite often, just because I can. SO, if your stock loses 25% and you go to sell it who would buy it if it’s already lost 25%? How does that work? Sorry if it’s a silly question although I know no question is a silly one when you are trying to learn.
    Canadianbudgetbinder recently posted..The Grocery Game Challenge #9 Feb 25-Mar 3,2013-No-Shop Week, No Means No!My Profile

    • Thanks Mr. CBB! I understand that fear, though it can be mitigated with some education which is readily available. Sure, there will generally be someone to buy it. I generally only deal with blue chip stocks which trade heavily enough that getting out of it should not be an issue. There’s no such thing as a silly question in my opinion, especially when it comes to investing.

  10. Hoping that a stock will come back is a psychological aspect to investing that can impact people’s level of success. It might be good to think in terms of a sunk cost concept, where we aren’t anchored to what we paid in the past.

    Plus, the math of recovering from losses is not favorable. If you start with $100 and lose 20%, you’ll have $80. To get back to even, you’ll have to gain 25%!

    • You’re exactly right. I love your sunk cost concept, as it really fits in this situation.
      Great point on needing to gain back 25% when you loss 20%! Not only do you need to gain back what you lost, but you need to earn back more, on a percentage basis. Thanks for stopping by!

    • Thanks Buck! I learned my lesson with Groupon to not buy into the hype surrounding FB. Glad you were able to get out from under that. Those order types get the best of us. :)

  11. Love this post, John. Do you have a post in your archives somewhere that’s kind of an “Investing for Dummies” type of a post? We’re putting a bit away for investing as we pay off our debt, and I would love to know what I’m doing when the time comes. :-)
    Laurie @thefrugalfarmer recently posted..February 2013 RecapMy Profile

    • Thanks Laurie. I have a few posts that are towards that bent, though some of them build on each other as it can be difficult to put that into one post. I am actually giving thought to writing an E-book or book on that very idea…though, that is a longer term goal of mine. If you ever have any questions, please don’t hesitate to ask me.

  12. I think you’re right, there is nothing worse than letting someone else make the decisions for you. Nobody will care about your money and how much it earns more than you. As a result, nobody will do the research you would do nor would they truly take your appetite for risk into account. Unless you’re blindly dumping into a Vanguard retirement fund or something, you should definitely do the investing yourself!
    Listen Money Matters recently posted..Build Credit Without A Credit CardMy Profile

  13. My perspective is to not buy individual stock but to invest in a diversified portfolio of large, medium and small mutual funds covering growth, value and blend. This eliminates a lot of the problems you speak of but you still need to monitor your investments. Also use index funds in these categories and consistently invest to take advantage of dollar cost averaging.
    Steven J Fromm recently posted..Estate Planning 2013: Now What? A Must Read For EveryoneMy Profile

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