Successful Investors Confess Their Biggest Rookie Mistakes

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Investing can be a complicated subject to understand, especially for those who are new to it. Though critical to your financial health and lifelong wealth, investing also can be tricky to successfully do. We all err along our investing journey. It’s perfectly normal and to be expected.

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To get a better understanding of errors new investors may make, GOBankingRates chatted with successful investors who confessed their biggest rookie mistakes. 

Becoming Emotionally Attached to a Stock 

If you really love a company and/or are passionate about what it does, it can be easy to fall a bit head over heels for it as an investment vehicle. This is not good. 

“While it is natural to develop preferences or convictions about investments, this emotional attachment can be dangerous,” said Baruch Silvermann, CEO of The Smart Investor. “[When] I fell in love with a specific stock, I allocated a disproportionately large portion of my portfolio to that one stock, neglecting diversification.”

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Ignoring Diversification 

As Silvermann suggests, neglecting diversification is a major mistake. It opens you up to incredible risk and, potentially, serious missed opportunities. It’s also a common mistake for newbies. 

“Ignoring diversification was an additional error,” said Michael Callahan, founder and CEO at The Callahan Law Firm. “Investing everything in a single high-risk endeavor resulted in significant losses. To mitigate risk, I now diversify my investments across assets, industries and geographies.”

Thinking Risk and Return Are Mutually Exclusive 

“I realized quickly that risk and return are not mutually exclusive,” said Phillip Shaw, a senior advisor and certified financial planner at Goldstone Financial Group, who at the beginning of his investment journey always looked for a way to outsmart the market. 

“If you are trying to make major returns, you will also take on significant risk, and I ended up losing on almost every one of those investments,” Shaw said. “For example, I used to invest in companies trading at a low value compared to their history or paying an exceptional dividend rate. But in this type of situation, it usually means the company is having trouble and those issues are not likely to be solved anytime soon.”

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Investing in a Business You Do Not Fully Understand 

Sometimes our steep expectations for a business drive us to invest in it, even if we don’t entirely understand it or even really like it. 

“One of the rules that I had set early in my investment journey for myself was to not invest in a business I do not understand nor have [a] desire to learn about,” said Linda Garcia, the author of “Wealth Warrior.”

“I paid the price for swaying away from what I had already learned in the market by trying to outsmart myself and copy the trajectory of other high-profile investors instead of staying grounded in my own rules,” Garcia said. “And the price wasn’t cheap. I made the impulsive decision to invest into a company that not only was outside of my area of expertise but went against my own personal beliefs.”  

Relying on a Single Metric To Evaluate Stocks 

If there were a formula to dominating the stock market or selecting perfect stocks, we’d all be billionaires by now. But there is no such thing. Abandon that conceit at once!

“Early in my career, I spent far too much time looking for a single metric to evaluate stocks,” said Asher Rogovy, chief investment officer at Magnifina. “If good investing were as simple as calculating a single ratio, a simple spreadsheet could manage an entire hedge fund.

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“In reality, investing is nuanced and there is no such thing as perfect financials. It’s vital to take a holistic view of any potential investment and to examine qualitative factors, which aren’t standardized and vary greatly between industries. Now I consider things like management team, brand perceptions, product differentiation and market structure in my analysis. This approach is called ‘quality investing’ and is far more advanced than simply looking for value and growth.”

Ego Tripping 

Are your stocks doing great? Are you reeling in the big bucks? Are you on top of the world? Reel it in, buddy. Overconfidence and excessive pride can easily go awry. 

“One of the most significant rookie mistakes I made was succumbing to hubris,” said Vincent Yu, co-founder of JAVLIN Invest. “In the early days of my investing journey, success quickly followed my initial forays, which led me to believe that I had figured out the secret sauce to investing. I felt invincible and thought I knew it all.

“This overconfidence, however, turned out to be my Achilles’ heel. The moment you think you know everything is the moment you stop learning and listening. This was my biggest mistake. I neglected the advice of more experienced investors and didn’t pay enough attention to market dynamics and trends. In essence, I was operating in a vacuum of my own making. This hubris resulted in a few poor investment decisions, which brought about some painful losses.”

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Not Asking for Help

As noted, investing can be complicated. It’s not something you can easily do without expert help — especially not at first. 

“One of the biggest rookie mistakes I made was not asking for help,” said Keith Sant, the founder and CEO of Kind House Buyers. “It can be intimidating to reach out to more experienced professionals, but they are usually eager to offer their advice and insight. By not seeking out help, I found myself stuck in certain situations and unable to move forward. Now when I find myself in challenging situations, I reach out to mentors or colleagues for guidance.”

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About the Author

Nicole Spector is a writer, editor, and author based in Los Angeles by way of Brooklyn. Her work has appeared in Vogue, the Atlantic, Vice, and The New Yorker. She's a frequent contributor to NBC News and Publishers Weekly. Her 2013 debut novel, "Fifty Shades of Dorian Gray" received laudatory blurbs from the likes of Fred Armisen and Ken Kalfus, and was published in the US, UK, France, and Russia — though nobody knows whatever happened with the Russian edition! She has an affinity for Twitter.
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