- There are a wide range of common mistakes that new investors tend to make.
- Over time, these mistakes will seriously hurt your ability to earn healthy profits in the stock market.
- Many of these pitfalls are related to which stocks investors buy and when (and why) they decide to sell their stocks.
- We cover 23 common mistakes and explain what you should do instead.
One of the greatest secrets to becoming a successful investor is to avoid the most common mistakes.
In several past lessons, we discussed how the average investor can fall victim to mistakes that end up really hurting his long-term returns.
For example, let’s look at this chart from J.P. Morgan, which shows how the average investor has performed vs. a range of other investment classes over the last 20 years.
See the orange bar near the far right?
As you can see, the results are not good. The average investor underperforms nearly every asset class on the market and just barely outpaces inflation.
How is it possible that common investors can trail so far behind every other benchmark?
It’s because there are a range of simple mistakes, or traps, that investors tend to fall into.
For example, Raymond James analyzed the biggest mistakes that hold investors back and categorized them into five major areas:
In our opinion, these are just a few of the mistakes that cost investors millions of dollars each year.
In this lesson, we’re going to help you avoid common mistakes and boost your long-term profit.
Before we jump in, we want to make one very important point:
Do NOT feel badly if you realize you make some of these mistakes. Every successful investor had to work to learn these lessons, and many did so the “hard way.”
Our goal is not to make you feel badly or highlight your mistakes. Not at all.
Instead, we want to help you understand these common pitfalls so you can elevate your investment knowledge, strategy, and decision making to the next level.
The fact that you’re reading this right now shows you’re already well on your way towards pulling away from the pack of common investors.
Let’s start by looking at the types of companies you choose to invest in.
In Level 4 of this course, we covered six different ways to find the best value, growth, dividend, small cap, large cap, and blue-chip stocks.
All of the profitable strategies we shared are backed by extensive research and testing.
However, many investors choose their stocks using a much simpler method. And unfortunately, that can cost them dearly.
Let’s start with two stock-picking methods that we think are HUGE mistakes…