My favorite quote by Warren Buffett is, “Successful Investing takes time, discipline and patience. No matter how great the talent or effort, some things just take time: You can’t produce a baby in one month by getting nine women pregnant.”
Now that is deep and philosophical. So why does a Warren Buffett quote matter?
Investing is a mindset. Stocks go up and down. As Warren Buffett said, “Investing takes time, discipline and patience.” So, to understand how to make money by investing – we need to know the opposite – how to lose it!
The following 3 mistakes are the most common mistakes made by investors when they begin investing in the stock market.
Mistake No. 1: Cheaper is better!
For a new investor, it’s common to focus on the price.
Because it determines how many shares you can buy. More always seems better.
But, is it better to buy more shares of a less expensive stock than just a few shares of a higher priced stock?
Actually, the price of the stock has nothing to do with whether the stock is cheap or not. If you have to choose between two stocks priced $10 and $100 respectively, the stock selling at $10 is not necessarily cheaper than the stock selling for $100. Price is what you pay and value is what you get.
The price per share of any company you want to buy should be nearly irrelevant to you. Think in terms of your overall dollars invested, and that’s how you allocate your funds. Do not think in terms of what a stock’s price is, or how many shares you get.
It’s all about making sure you buy quality companies that you feel supportive of.
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
Make your portfolio reflect your best vision for our future. I try to find excellence, buy excellence, and add to excellence over time. I sell mediocrity. I would recommend you do the same.
Whether you own 10 shares at $100 or 100 shares at $10, you still own $1,000 of a company. If that company’s market value grows by 10%, you earn $100 regardless.
Cheaper is not better. Buy value and you won’t make one of the most common investor mistakes.
Mistake No. 2: Trying to time the market
When should you put your money into the market? When should you pull it out? Is there a best and worst time?
Timing the market is trying to figure out the best times to put your money into and pull it out of the stock market.
We’ve all heard, “buy low, sell high,” but when do you know the optimal time to do that? You don’t, and neither does anyone else.
There is no timing the market. Dollar-cost averaging is your friend!
This means slow dripping your investing money into the market rather than throwing it in all at once.
This is a good philosophy for new people or those nervous about investing. It is a set-it-and-forget-it approach – over the long term, you will make money due to compound interest!
A platform like M1 Finance allows you auto-invest daily, weekly, monthly, etc. – which is PERFECT for a dollar-cost averaging investment strategy.
You can look at your computer screen all day or watch CNBC – but trust me when I say this, as a retail investor, you are never going to be the first one to get any news!
Somebody has already made money on the news and is counting on you to act on the breaking news, in order to make more money at your expense!
Always assume that you are the last one receiving the news!
You can’t time the market. Rely on dollar-cost averaging and you won’t make one of the most common investor mistakes.
Mistake No. 3: Patience
Slow and steady comes out on top – be it at the gym, in school or in your career. Why then do we expect it to be different from investing?
A slow, steady and disciplined approach will go a lot further over the long haul than going for the last-minute “Hail Mary” plays.
Investing is playing the long-game. Are there stocks that will explode and go up 163% overnight?
Yes, but remember those are rare. Like a unicorn.
“If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio’s market value.” -Warren Buffett
Expecting your portfolio to do something other than what it is designed to do is a recipe for disaster.
This means you need to keep your expectations realistic in regard to the length, time and growth that each stock will encounter.
Set-it-and-forget-it. Be patient. Don’t be impatient and make one of the most common investor mistakes.
Common Investor Mistakes Conclusion
Why did I discuss the 3 most common investor mistakes?
Because I made these mistakes when I started investing.
Am I ashamed? Nope!
Mistakes allow for learning – however, it can be painful. I hope by sharing these, you can avoid them. If not, hopefully, you will reflect on your decision – learn and grow.
There are many more and even after 10 years of investing, I continue to make mistakes!