Today I’m going over the 7 Common Investor mistakes from Burton Malkiel’s book The Random Walk Guide to Investing – Ten Rules For Financial Success.

I’m excited to share with you these common mistakes (which I’ve definitely made myself!).

Wouldn’t it be great to understand them before you make a mistake that will cost you thousands of dollars or more?

Here we go!

#1 Common Investor Mistake – Overconfidence

There’s a study that shows that college students that were asked to rate whether they are better drivers than other college students in the room tended to rate themselves as better drivers…a full 90%.

We as investors also tend to be overconfident in our abilities to pick the winning stock, winning real estate deal, etc.

That is also why money managers exist, even though 90% of them do worse than the market (an index fund).

#2 Common Investor Mistake – Herding (Following the Crowd)

Remember the tech stock bubble of 2000 – 2003? What about the real estate crisis and the recent surge in Bitcoin?

These trends cause frenzies of excitement that you can read about all over the news.

Avoid the herding behavior.

It occurs because people are blindly putting their money in to follow the crowd, and artificially inflating values.

#3 Common Investor Mistake – Illusion of Control

There was a study of people conducted where they were told to control balls movement on a screen with a controller which had no control over the ball. They were told that there would be glitches so sometimes they wouldn’t have control.

Afterwards they reported feeling a good deal of control over the ball’s movement even though they had no control at all!

Other studies show that when we choose something, we feel we have more control over the outcome as opposed to something being handed to us.

Hence, when we choose what stocks to invest in we will feel that the stock will do well, even when it does not, and we have no ability to predict its performance.

Be wary of this illusory sense of control when investing.

#4 Common Investor Mistake – Loss Aversion

We won’t sell our losing stocks, even though we should, because we feel that if we do we will be admitting that we lost money.

Hence we will hold onto losing stocks much longer than we should, and also sell our winners to show that we didn’t lose, even though we should keep them!

I suffer from this…ah pride.

#5 Common Investor Mistake – Other Psychological Pitfalls

Susceptibility to Hot Tip Investing – When you hear someone tell you a hot stock tip, think twice. Is the information so secret that you would hear it? Avoid hot tips…the market already knows.

Gin Rummy Behavior – Don’t play stocks like you’re playing cards, and keep switching from one mutual fund to the next. Every time you change your positions you incur fees. In addition, you are not going to ever perform better than leaving your money in an index fund.

Believing in Foolproof Schemes – Nothing is guaranteed in investing. Remember Lehman Brothers? Who knew that they would go under? If someone is giving you a guarantee, they are lying to you.

#6 Common Investor Mistake – Ignoring Costs

There are a lot of fees in Mutual funds. Be sure you are investing in low fee funds, of less than 1%. The lower the fees, the higher your returns.

Do not invest in funds that have front load or back load fees, or any other extra fees.

#7 Common Investor Mistake – Getting Entranced by New Issues (IPOs)

Initial public offerings are what new companies offer when they first offer securities. Studies show that investing in IPOs underperforms the general market by 4%/year.

In addition, when the stock is first offered and for the first 6 months, there is generally an temporary inflation to the price of the stock.

Save your money and avoid investing in IPOs.

Conclusion

Use these 7 Common Investor Mistakes to Avoid to adjust your investing behavior.

I’m already thinking of selling some losers!

There’s a lot I have to learn, but it’s fun to learn about human behavior and why we invest in the ways that we do.

If you want to learn more from Burton Malkiel’s book The Random Walk Guide to Investing then CLICK HERE for 10 Rules of Success from Burton Malkiel

About Mey

Back in 2011 I had over $30,000 in credit card and line of credit debt, was living paycheck to paycheck and was stressed out over my lack of success in my financial life.

In April of 2016, I became debt free and had a monthly passive income stream.  I quit my job on December 23, 2016, and started doing my dream work of mentoring others on what I did to create the freedom to quit my job.

In 2017 we bought our first condo in Waikiki, and we went on 5 weeks of vacation (including a 7 day cruise to the Mexican Riviera)!!!

In 2018 we bought our first investment property and we converted our first condo into our 2nd investment property.

In 2019 we sold an investment property to buy our dream home steps away from Waikiki beach.

I spend most of my time doing what I dreamed of for years, surfing, spending my days with my son Jordan and my husband Jomel, enjoying motherhood and being a wife. 

I also enjoy researching Financial Freedom and sharing what I learn with my clients and on my blog.

If you want to learn more about how I can help take back control of your money and your time, then CLICK HERE, watch the free video and get started!