#1 of the Investing Mistakes — Putting Too Much Faith in Experts.
Most experts are compromised in some way. They might hope to sell you something. They might not be willing to jeopardize their popularity by shooting straight with you. They might be wedded to a school of thought they learned about in school and be reluctant to give it up even though it has been discredited.
#2 of the Investing Mistakes — Trying to Know Too Much.
No one knows everything there is to know about investing. Insist on getting everything pinned down before acting and you’ll never act.
#3 of the Investing Mistakes — Being Satisfied with Knowing Too Little.
The biggest problem with trying to know too much is that it eats up time that could have been spent developing a firm grasp of the fundamentals. You must possess a clear understanding of the fundamentals before putting money on the table.
#4 of the Investing Mistakes — Failing to Consider Prices.
It kills me to see people who watch what they spend on cars and houses and vacations not even pay attention to the prices that apply for the stocks they buy. Many of us spend more in the course of a lifetime on stocks than we do on cars or houses or vacations. Don’t agree to a bad deal just because you are anxious to complete a deal. The income you will be paid for your investing patience may well end up being the largest per-hour income you will ever be paid.
#5 of the Investing Mistakes — Giving Too Little Attention to the Emotional Side of the Story.
All investing decisions are made as a result of a mix of reason and emotion. The reasoning side of the story is relatively easy to figure out. So there is lots of material in the literature addressing it. The emotional side of the story is harder to figure out. So it is harder to find good information that addresses this side of the story. The biggest risk that investors take today is the risk associated with not being informed about the emotional side of the investing decision-making process.
#6 of the Investing Mistakes — Focusing on the Short-Term.
Few of today’s investors will acknowledge a short-term focus. But many point to results they have obtained over the past 10 years when their strategies are questioned. Investors as a group are about halfway to where they need to be to develop the skills needed to become true long-term buy-and-hold investors.
#7 of the Investing Mistakes — Not Paying Heed to Common-Sense Doubts.
Much of the conventional investing wisdom does not add up. You don’t need to study investing for years to see that. Your common sense tells you. Listen to those warning voices. Don’t assume that because a good number of others are going along with a strategy that does not seem to make complete sense that it’s because you are dumb that you have doubts. Get all of your questions answered before putting money at risk.
#8 of the Investing Mistakes — Putting Too Much Confidence in Numbers-Based Analyses.
Mark Twain cautioned us about lies, damn lies and statistics. Numbers can be used to “prove” the merit of just about any investing strategy imaginable. Numbers alone are never enough.
#9 of the Investing Mistakes — Putting Too Little Confidence in Numbers-Based Analyses.
Words alone are often not enough either. After you have learned not to trust numbers, you need to learn to trust them again in circumstances in which they add value. Numbers that support strategies rooted in common sense are a huge help because knowing what the numbers say can help you tune out a lot of dangerous nonsense.
#10 of the Investing Mistakes — Granting Too Much Influence to the Views of Friends, Neighbors, and Co-Workers.
Listen to what your friends, neighbors, and co-workers say about what plumber to use. Be skeptical about what your friends, neighbors and co-workers say about what investment is right for you. What ‘s the difference? Your friends, neighbors and co-workers have no reason to steer you wrong about plumbers. When stock prices are high, there’s a good chance that your friends, neighbors and co-workers own stocks and have become emotionally invested in this asset class. It might be that they are deceiving themselves as much as they are deceiving you. Knowing that will offer little comfort when the investment fails to live up to expectations.
#11 of the Investing Mistakes — Failing to Discuss Things Regularly with a Group of Like-Minded Friends, Neighbors and Co-Workers.
You can’t go by what your friends say just because they say it. However, it can be a big help to find a friend with similar investing views. Humans are social animals. We need reassurance to stick to our strategies. We learn more by talking things over with those of like mind than we do by reading books.
#12 of the Investing Mistakes — Treating Investing as a Life Endeavor Unlike Most Others.
Dating can teach you about investing. Raising a child can teach you about investing. Advancing in your career can teach you about investing. Bodysurfing can teach you about investing. Why do so many put “Investing” in a box by itself? Humans invest. You don’t take off your human hat and put on an investor hat when it comes time to make decisions about stocks or bonds or real estate or whatever.
#13 of the Investing Mistakes — Making Financial Plans Based on Newspaper Numbers
You need to know what you are worth to make realistic financial plans. At times of overvaluation and undervaluation, your stock portfolio is not worth what the newspaper numbers say it is worth; it’s true worth is a good bit less or greater than what those numbers indicate. If you fail to make adjustments, you will find yourself over time becoming more and more reluctant to accept the realities. Down that road lies real trouble.
#14 of the Investing Mistakes — Letting the Dark Side of Human Nature Gain the Upper Hand.
When people talk about investing emotions, it’s too often fear and greed that are the focus of the discussion. How about hope? How about love? Some emotions cause us to do bad things, some emotions cause us to do good things. Don’t tune out your emotions; that never works. Tune in to the good emotions and use them to counter the negative influence of the bad ones.
#15 of the Investing Mistakes — Not Taking Enough Chances.
There is no such thing as a truly risk-free investment anymore than there is such a thing as a truly risk-free life. The entire point is to take some chances. So get in there and take some chances. Ask a girl to dance. Get rejected. You’ll figure it out. It’s by taking chances that we learn, and it’s by learning that we get rich.
#16 of the Investing Mistakes — Taking Too Many Chances.
It’s one thing to ask a girl to dance. It’s something else to drive drunk at 80 miles per hour on a motorcycle in an attempt to impress her. Don’t take all your chances at one time. Spread them out. Wait for the right girl to come along and put it all on the line then. Take calculated risks.
#17 of the Investing Mistakes — Failing to Learn from the Past.
You don’t need to crash your motorcycle to figure out that it’s not a fun thing to do. If you see that there’s something that has caused lots of others to crash their motorcycles before you came along, don’t do that thing.
#18 of the Investing Mistakes — Failing to Anticipate How the Future Will be Unlike the Past.
Maybe in the old days there was no need to invest globally. Maybe that’s changing. Read the motorcycle magazines to keep up with changing times.
#19 of the Investing Mistakes — Adopting a Bull vs. Bear Mentality.
Bulls know things that bears do not know. Bears know things that bulls do not know. The object of the game is to make money. That means that you are not above learning from bears or bulls. If you find yourself adopting an “us vs. them” mentality, you’re doing something wrong.
#20 of the Investing Mistakes — Putting Too Much Faith in Academic Theories.
Academic theories can help so long as you keep the insights they seem to offer in perspective. The more complex a theory is, the more skeptical you need to be regarding it. Ask yourself — Why is this theory popular? Is it because it explains riddles? Or is it because it benefits people trying to sell something or props up a story that has become too good to be true?
#21 of the Investing Mistakes — Taking Too Much Personal Credit for Successes.
Everyone who owned stocks made money in the bull market of the 1980s and 1990s. Those who started thinking that it was their own genius that was responsible have faced more inner resistance to the idea of lowering their allocations when prices got out of control.
#22 of the Investing Mistakes — Taking Too Much Personal Blame for Failures.
Lots of investors are likely going to suffer pains when stock prices return to more reasonable levels. Is it their fault? To some extent. Not entirely. This is a story that repeats over and over. So it is fair to say that the pull to overinvest in overvalued asset classes is a strong one. You should try to learn from your mistakes. To do that, you first need to stop hitting yourself.
#23 of the Investing Mistakes — Not Laughing Enough
A sense of humor is the distinguishing trait of the world’s most successful long-term investors. Why is a sense of humor so important? It helps you distance yourself from your decisions. It allows you to pull back emotionally and allow your reason to tell you what it wants to tell you.
#24 of the Investing Mistakes — Failing to Learn from Mistakes.
If you make your big mistakes young, consider yourself blessed. If you make a big mistake when you are up there in years, that really hurts. Perhaps you have more time ahead of you than you realize, though. Perhaps it won’t take as much time to make up for reversals as you are now thinking it will take. God created mistakes to teach us. The learning experience has monetary value — not immediately, but over time. Don’t let any whopping big mistakes go to waste.