Between the market crash last March and the roaring rally that followed amidst the worst economic downturn since The Great Depression, 2020 was a particularly trying time to be an investor. Like many people, I made a couple of investing mistakes amid the confusion and chaos. 

Every mistake is a learning opportunity, but when it comes to your portfolio, it's much better to learn from someone else's experience. On that note, let's examine my top two investing flubs of 2020 so that you'll be immune to them in 2021. 

A frustrated trader hits his forehead with his palm.

Image source: Getty Images.

1. Taking uncalculated risks

Investing in a profitable, rapidly growing, and all-around prosperous company like Alibaba (BABA -2.06%) didn't seem very risky to me. Even amid the warped economic environment of the pandemic, it was clear to me that Alibaba is in so many different lines of business that its earnings would keep on expanding each quarter. I didn't expect its stock to hit triple-digit gains, but I was comfortable with starting a position that I planned to hold for at least a few years. This comfort was my mistake. 

Shortly after my investment in October, regulators in China suspended the initial public offering (IPO) of Ant Group, an Alibaba-affiliated digital payment processing company. This sent the stock into a tailspin, and it still hasn't completely recovered. I hadn't fully appreciated the political and regulatory risks facing the company before buying the stock, so I was caught completely by surprise.

It goes without saying that the regulatory environment in China is different from the one in the U.S. So, I should have built up my understanding of the situation by studying how the regulators there approach public offerings, especially in the context of a somewhat outspoken CEO like Jack Ma. It's impossible to know for certain what regulators are going to do in advance, but it's important to have an idea of what they could do. The larger lesson here is that if you don't take the time to systematically consider the totality of the risks that could impact a potential investment, you're more likely to be blindsided. 

To sum it up even more broadly: Don't invest in stocks you don't comprehensively understand.

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2. Not taking calculated risks

Coronavirus vaccine stocks were white-hot in 2020. Whenever a vaccine manufacturer released new information on how its candidate was coming along, the market would practically convulse. Even after a handful of the companies involved reached comically high valuations relative to their revenue, there was always the chance that the market would react favorably to another headline anyway as it priced in the new information. 

Knowing this, I decided not to invest in Novavax (NVAX 15.33%) and Inovio Pharmaceuticals (INO -2.21%). Neither company had any medicines or vaccines that were approved for sale at the time, so in my judgment their core technologies were largely unproven. Because I was fixated on the chance that their vaccine development efforts would fail during clinical trials, I neglected to appreciate the chance that they could be good investments in the context of the market's behavior during the pandemic. I considered them to be too risky, and I imagined that their value could collapse overnight, given that neither company had any revenue or earnings to speak of.

As true as that proposition might have been, my cautiousness made me miss out on the phenomenal growth that both stocks experienced. Because I focused too much on the risk of the worst happening with these stocks, I couldn't accept that the hype cycle could work in my favor if I invested. I also failed to recognize that the act of working on a coronavirus vaccine would open new doors for both companies by granting them access to many public resources and powerful collaborators, thereby increasing their chances of success in the future. I felt especially sheepish when I later realized that I could have invested in a basket of coronavirus vaccine stocks to diversify my holdings and dilute the risk to my portfolio. 

The takeaway from this missed opportunity is that if you let your fear of experiencing a loss get in the way of taking actions that could lead to a big gain, your portfolio won't have the chance it needs to grow. Similarly, don't forget that diversification is a powerful tool to protect yourself. Make use of it! Be sure your portfolio is anchored by long-term buy-and-hold positions -- and that you also leave room for some explosive gains.