Common Reasons People Make Investment Mistakes

In investing, we’ve all made mistakes. And if you are a fairly new investor, chances are that you too would soon add a couple of mistake-induced lessons to your repertoire of knowledge.

Making mistakes are part of the general process of living. However, the approach to dealing with mistakes is not to beat ourselves up, but to learn those hard lessons.

In investing, we’ve all made mistakes. And if you are a fairly new investor, chances are that you too would soon add a couple of mistake-induced lessons to your repertoire of knowledge.

However, the learning process is not contingent on making mistakes. In fact, you are better off when you learn from other people’s mistakes and bear them in mind as you move along on your journey.

And for this, it is not just enough to be aware of the mistake, you also need to be able to identify the reasons the mistake was made in the first place and run away from it as a plague.

Whether these mistakes were made by you or by somebody else, you must be able to analyze the reasons they were made in the first place.

When it comes to investments in the stock market, the following are common reasons people falter and make mistakes that ultimately cost them a myriad of losses.

When They Join Bandwagons

There are periods when certain investments seem like the cash cows. These investments, much like Ponzi schemes, have been attempted by so many people who have successfully bagged earnings as a result of it.

However, it is important not to get lost in the hype. Many investors have derailed from their detailed investment plans to purchase investments just because other people did it. You would be amazed at how many of these things are merely speculations.

Basing performance on Historical results

This is a common mistake made by investors who are overly analytical. It is easy to get excited by speculative forecasts.

However, where these forecasts are as a result of historical performance, you just might be shooting yourself in the leg. If investments were predicable, we would all be instant millionaires. But, the case is not so.

Most of the time, future outcomes would differ from historical achievements/ losses. At best, historical performance should simply give you context into the performance of a company and not serve as a basis for decision making.

Greediness

There is a thin line with wanting more or the even wanting the best, and not being greedy. Greed and the desire for results that are in no way ‘sensible’ has driven many investors into huge losses that could have been avoidable.

The rule of thumb is that if an investment sounds too good to be true, it probably is. Do not be swayed by promises of impeccable returns.

When your hunger for more comes up especially in line with an opportunity, let your better judgement take a stand.

Lack of Understanding

Firstly, if your investments are not within your circle of competence, you are already treading on slippery paths. Even when the investment is part of something you understand, do not hesitate to carry out your homework.

Peruse the company’s financial statements and be on the lookout for news that relate to the stock. What is the value of the company?

Do you believe that is the true value of the company? If you don’t know, you wouldn’t know a mistake even if it was staring you in the face.

Investing Haphazardly

An investor who commences his investment journey without a plan is just like a soldier who goes to war without weapons – it would only take so long before you crash.

Do not invest without a clear plan. This is very important because it is only with a clear plan that you can make decisions that would be beneficial to your overall objective.

If you don’t have an investment plan, it is important that you take out the time to craft a solid one first.

Steer away from avoidable mistakes. Make the changes in your investment patterns today.

Written by Lawretta Egba.