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5 Common Mistakes Made by Investors

Investing is difficult and requires perseverance. Learn how to avoid these 5 common mistakes made by investors. 

No one said investing is easy. Investor mistakes are quite common although the majority of them are avoidable. This list is by no means exhaustive, just a selection of my favourite and most recurring mistakes made by investors.

1. Investors Don’t Understand What They’re Investing In

It sounds rather silly, but it’s true. If you asked someone to explain the fundamentals behind a specific stock or crypto they have invested in, I can confidently claim a few of them wouldn’t know more than the name. That is an immediate cause for concern. There are several important questions an investor should consider concerning their investment: Are they solving a problem or providing value in some form? Do they have many competitors? Does it have the potential to do well?

It is worth noting that a lack of knowledge does not have to originate from the purchase itself, but where you are purchasing it from. In 2022, there are more platforms and applications to invest in than ever before. In particular, some offer zero percent commission or fees, which makes them highly attractive. However, is that true? Most of the time you are paying a fee whether it is a slightly higher buy-in price, through dividend payments or other methods. Additionally, you should check what ownership levels you have as it can vary on the platform you use (See mistake 4 below).

2. Too Many Investors Have a High-Time Preference

This can depend on all sorts of factors such as your age and your income. Unfortunately, too many investors have a high-time preference. Someone that has a high-time preference is looking to make that 10x overnight, lured into a fallacy of making millions by buying a “low-cap gem”. This is extremely risky and often leads to a mistake. Investing, as opposed to trading, is naturally long-term, and the most successful investors make their decisions accordingly. You should try and learn to have a low-time preference and have patience in your investment and over the long-term you should be pleased you did.

3. Investors That Buy High & Sell Low

Do you have a strategy? Is your plan to make money over time? If so, that is great, and you won’t follow the buy high, sell low strategy that many investors make. No one intends to buy high and sell low because you would be at a loss. However, there are lots of reasons for getting shaken out of your investment. The main reason is down to human psychology as most people tend to want to buy when the price goes up and then sell when they see the price go down. This is understandable as it becomes natural to feel both euphoric and scared as the market fluctuates. Whilst these emotions are good, investors tend to do better when they do the opposite of these actions. Another cause is down to being sucked into media FUD (Fear, Uncertainty, and Doubt). Whilst it may seem reasonable to listen to news sources, it can also indicate you are too emotionally invested and haven’t built up enough conviction on your investment.

4. Investing Without doing Their Research

What made you make this investment decision? Was it off the back of intense research or did you follow someone’s endorsement of a project? If you don’t do personal research then how can you take ownership of your investment decisions? You have to take responsibility for your own financial decisions and therefore you should always do your research before investing your money. There is nothing worse than chasing a pump of a project in the hope of joining the hype, all for it to come crashing down as you realise that it’s already run its course. Usually, it ends in disaster and you will feel hard done by. In truth, it was your own fault for not taking the time to research the project.

5. Investing More Than They Can Afford to Lose

For the most part, investing is easier to manage in the long-term and therefore your capital isn’t normally required in the immediate future. If you are investing more money than you can afford i.e. more than your wage or rent, then you are putting yourself in a risky position. At this point, you are no longer investing, and instead, gambling your money.

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