Learning a new skill can be really difficult. Just getting up the nerve to start is a challenge, and your first tries at something new can be discouraging, especially when you see others with more experience doing so much better than you. It's easy to think that you're the only one who's ever been so unskilled, or so prone to making mistakes.
However, even experts make mistakes, especially when it comes to investing. There are many opportunities for error in trying to pick the perfect investments, and it's impossible to predict with any certainty every potential problem that could spell ruin for a particular investment. Yet with the right attitude, you can learn from your mistakes and take steps to avoid them in the future, all the while recognizing that you'll inevitably find some new way to make different kinds of mistakes.
Fools 'fess up
Here at the Fool, you can see all kinds of investing mistakes at the My Dumbest Investment discussion board. It's a great way to vent when you feel like you've done something incredibly stupid, and it can definitely make you feel better to see so many others falling into similar traps with their investing decisions. However, it's also a helpful place to try to learn from the mistakes of others -- without having to make them yourself.
After looking through some of the thousands of posts on that discussion board, I've found that the mistakes Fools have made are as varied as the Fool community itself. In general, though, you can break down Fools' specific errors in judgment into several categories.
1. Not understanding the investment.
As an investor, you'll get offers to buy all sorts of things. Partnerships, real estate, partial ownership in a business, stocks ranging in price from a penny to $100,000 and more -- the sky's the limit when it comes to people trying to get your money. You probably won't understand the first thing about many of the investment ideas that people pitch to you, and you shouldn't be embarrassed or feel bad about that. The mistake people make, however, is to go ahead and invest their money without first figuring out exactly what they're buying with that money. Too often, the salespeople who sell you unusual types of investments are more interested in their sales commissions than the integrity of whatever they're selling. The lesson: If you don't understand it, don't put your money into it.
2. Being greedy.
When they're fortunate enough to find a good investment, some investors find it hard to believe that it'll ever go down. As the price continues to rise, they invest more and more of their money, hoping to turn a quick but huge profit. Instead, at some point their investment starts to drop. Rather than getting out with a smaller profit than they hoped for, many ride the investment all the way down, missing out on their profits entirely or even losing money. This isn't just something that happens with unknown companies; investors did it with big tech companies like Intel
3. Not being greedy enough.
On the other hand, some investors successfully find good investments, but settle for too little. You'll find plenty of stories about people who bought long-term winners like Dell
4. Waiting too long to invest.
You'll find several stories from people who were hurt by their own procrastination. For some, they waited until late in life to start investing, missing out on much of the benefit of compound interest, and leaving themselves too little time to reach their goals. Others correctly identified promising investments, but decided to wait for a better price, only to watch as prices rose well beyond their original starting point. When you have a good idea, it usually doesn't pay to wait for the perfect moment; often, the perfect moment is now.
5. Being overconfident.
A lot of people didn't make mistakes with their first investment; in fact, many of them made big profits. While you might think that doubling your money with your first foray into the financial markets would be a positive thing, it often misleads beginning investors into thinking that they'll always be able to make those kinds of profits without any effort. These investors' beginner's luck created unrealistic expectations, causing them to make bad decisions with their subsequent investments, and many of them ended up losing whatever they made on their first investment and then some. Be happy when you choose your investments well, but don't get cocky; overconfidence can be hazardous to your financial health.
Don't feel bad about the investing mistakes you make; you're in good company. At the same time, however, try to learn from both your own mistakes and the mistakes of others in order to avoid repeating them. Over time, your efforts will make you a better investor.
Related articles:
If you want advice on investing, your personal finances, and a variety of other useful topics, check out Motley Fool Green Light. The Fool's personal-finance advice service is designed to help you save and invest with confidence. Take a look today with our free 30-day trial.
Fool contributor Dan Caplinger has made some doozies in his time. He doesn't own shares of any of the companies mentioned in this article. Intel, Dell, and Microsoft are Motley Fool Inside Value picks. Dell and Time Warner are Stock Advisor selections. The Fool's disclosure policy is foolproof.
