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15 biggest investing mistakes to avoid to become a better investor

investing mistakes

Mistakes are just a learning opportunity.

You can learn by making mistakes yourself, but it can take a lot of time.

However, there is a better and faster way to learn, learning from other people’s mistakes.

In this article, you’ll look at the 15 biggest investing mistakes that you might be doing, or you’ll do in the future.

Knowing investing mistakes early before making them, and avoiding them altogether will help you be a successful investor.

1. Not going beyond FD and gold

We tend to do the things we already are doing whereby we hardly go beyond that.

Gold and FD are traditional investments.

And it has some limitations.

It has a low return thereby it can’t beat inflation.

Your money can’t build wealth for you if don’t go beyond FD or gold.

Educate yourself about other investments. Such as:

If you don’t want to invest in stocks because of the time it takes to analyze companies, Invest in mutual funds.

Or hire a financial advisor.

2. Waiting for the right time or delaying investing

Maybe you’re waiting for increasing your income.

Or you don’t feel it is the right age to invest in stocks or other assets.

There is not a right age to invest until you start making money.

You can start investing with low as RS 100 in the stock market.

Delaying investing is the biggest investing mistake you can make.

The more you delay, the less benefit you’ll get from compound interest.

3. Investing borrowed money

In 1930, Benjamin Graham was 36 years old and already had success in the stock market.

So, when he met with John Dix, a successful retired 93-year-old entrepreneur, Benjamin Graham was full of confidence.

When Dix asked, how much money you owed.

Dix didn’t like his answer.

Because Graham used a lot of debt to finance his investment.

After hearing an answer, he gave him a warning.

Dix said,

“Mr. Graham, I want you to do something of the greatest importance to yourself.

Take the train to New York tomorrow. go to the office

sell out your stocks or investments; pay off your debts and return the money to your partners.

I won’t be able to sleep at night if I were in your position in these times, and you shouldn’t be able to sleep either.

I am much older than you and much more experienced, and I recommend taking my advice.”

Like most people, he didn’t take his advice.

Graham suffered incredibly in 1930 and forward years either.

After losses, he takes his advice and earns good returns in the stock market in later years.

4. Not knowing your risk appetite

You might hear the phrase “investing is subject to market risk.”

Whether you invest in FD or stock or mutual funds it comes along with its risk.

Taking too much risk can lead you to go outside your comfort zone.

Whereby you can make decisions that affect your investment portfolio.

Or taking to little risk can’t reach your financial goal as you thought.

So, knowing your risk appetite before investing will help you make rational decisions on investing.

Suggested reading6 Steps To Create Your Best Investment Plan

5. Don’t keep an emergency fund

As folks know why investing is important, they tend to invest all their money.

Beware of what if they need money in the short term.

Investing all your money in the stock market and not keeping an emergency fund will disrupt your compounding.

Keep at least 6 months of expenses amount in the liquid form.

Whereby you don’t need to sell your investment in an emergency.

6. Emotion drove investing

It is a common investing mistake people make.

Therefore, you’ll see a recession in a market.

Of course, it is not the only reason.

warren buffett quote

“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” Warren buffet

Most of the time people often do it conversely.

Thereby people often lose money in the stock market.

Stay focused on your goals.

Remind yourself why you invested in a company.

Don’t sell your investments until something miserable happened to the company.

Don’t react to the short-term market fluctuation, instead focus on the bigger picture.

7. Chasing return

What happened when you chase return?

You sell your better ideas because it is not moving and buy ridiculous stocks and get into trouble.

Please, don’t do that.

Also don’t compare your portfolio stocks with other stocks or indexes.

When the interviewer ask Mohnish Pabrai about his underperformance,

he replied, “I think it is an irrelevant data point.

There is nothing intelligent that one can say about short periods like 10 months.

I never make investments with any thought to what will happen in a few months or even a year.”

8. Don’t invest in financial education before investing

When Rahul (the fictional character) knows about some investing assets (let’s lake cryptocurrencies), he before even learns about it he starts investing just because their friend says it’s a great investment.

He invested a lot of money in crypto, and after a year he lose half of their money.

While on the other hand, his friend doubles his investment in a year.

Why did Rahul lose money and his friend made money despite investing in the same asset class?

Just because Rahul lacks financial literacy, his friend is educated about investment.

Before investing in any assets learn about them for at least 48 hours.

You can learn from people, blogs (just like you’re doing it now), books, online courses, and YouTube.

In my opinion, the best way I found is from the books.

Suggested reading15 Best Investing Books for Beginners (2022)

9. Not diversifying

Diversification means investing your money in a variety of assets such as stocks, bonds, real estate, mutual funds, etc…

In stock or mutual funds, you can go even deep than that by investing in different sectors and industries.

It’s a better way of reducing your portfolio risk.

When you are investing in just one stock then your all money is entitled to that stock.

If the stock fall, you’ll lose money.

And if the stock rise, you’ll make money.

However, if you diversify your investment across other stocks, you balanced out your portfolio.

For example, suppose you include 5 small-cap stocks, 5 mid-cap, and 10 big stocks from different industries.

Then despite a few stocks will fall in value your others might go up.

10. Buying and selling too often

Buying and selling too often and too much is the silliest investing mistake you can make.

Don’t invest like you’re a trader, invest like you’re an investor.

As more you buy and sell, your trading fees will also increase.

And it has a significant impact on your investments.

Often it takes time for your investment to grow.

But if you have to analyze a business carefully and build a better portfolio then just be patient.

Buy right, hold tight.

11. Trying to time the market

Trying to time the market is the biggest investing myth.

Don’t wait for the market to fall or the market to rise.

There is no right time to buy and the right time to sell.

If someone is trying to say this is the right time, probably they have a market timing service to sell you.

If market timing is so much easy, then the richest person in the world would be the fund’s managers.

Use a dollar-cost averaging strategy.

Invest some amount, every month.

Over the long run, you’ll succeed.

12. Investing in penny stocks

A penny stock is a share of small companies that are trading at below Rs 10.

Most beginner investors think, ohh the stock has just Rs 5, it can easily go to the Rs 10.

They bought it and lost it in the stock market.

This is a common investing mistake people make.

It has a reason why the price is lower than Rs 10.

Don’t invest in penny stock just because you think it is cheap.

It is cheap for a reason.

13. Ignoring valuation

Don’t ignore valuation or you’ll end up buying a stock that is worth less than your bought price.

For checking the actual worth of stock, you need to do a valuation of a company.

By doing this you’ll know the company’s actual value.

Then you can buy the stock, only when its’s intrinsic value is more than the current market price.

The most astounding company can be a poor investment if you bought at the wrong price.

So, don’t ignore valuation.

14. Attach with the product or a company

If the company gives you a lot of returns over the years, you’ll sometimes feel bad to sell the stocks.

Don’t forget you bought the stocks to make money.

If the company’s fundamentals deteriorate, don’t hesitate to sell the stocks.

If the company product, do you use despite it being good, it does not necessarily give you a great return.

Just asked yourself before buying stock, “Would I buy the whole company if I could?

If the answer is no, don’t invest in it.

No matter how good the company product is.

15. Complexity in investing

Often people use so many investing strategies,

for example, sometimes they use a buy and hold strategy or just change onto others,

and sometimes they over diversify or sometimes they stick to the one stock.

Don’t make investing complicated.

Investing is simple, but not easy.

Focus on just a few key investment ideas to make better-investing decisions.

See how Charlie Munger simplifies the path to wealth creation:

  1. Spend less than you make.
  2. Always be saving something.
  3. Put it into a tax-deferred account.
  4. Over time it will begin to amount to something.

It should be simple, but not simpler.

Conclusion on investing mistakes

These 15 investing mistakes you should avoid to become a better investor.

If somehow you made the mistakes, don’t do it twice.

Now it’s your turn.

Let me know in the comment section, what investing mistakes were you making?

And what you did to avoid it.

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