No one becomes a successful investor without making some embarrassing errors along the way. While everything can be a "learning experience," if you're the one doing the learning, you're also the one doing the losing.

Below, three Motley Fool contributors who have been around the track a few times share investing mistakes that cost them big-time money. Hopefully, they've done the learning (and the losing) in order to help you avoid falling into the same traps.

Money falling down a drain.

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Cashing in means losing out

Barbara Eisner Bayer: Back in the 1980s, I was a young, struggling New York City actress/singer, working off-hours in a huge law firm to supplement my theatrical income. How naive was I about the stock market? I thought that a "portfolio" was a leather case in which one carried modeling headshots.

In 1989, my husband and I purchased a house in Woodstock, New York, about two hours from Manhattan, and I gave notice to my employer. Much to my surprise, I discovered that I had $12,000 sitting in a 401(k), which, at the time, was a small fortune -- especially considering we were going to incur huge expenses moving and furnishing a new house.

401(k)s were still in their infancy and came of age in the 1980s, but I knew very little about them. All I knew was that I had the option to cash it out or keep it in some type of retirement plan. But I never really investigated the options because I knew what I was going to do -- $12,000 would go a long way to help us get settled in our new home.

In retrospect, that turned out to be one of my worst investing mistakes. (I'll spare you the tales of selling Amazon, Apple, and Microsoft in the 1990s instead of holding them for the long term -- which is, of course, the secret to creating long-term wealth. But it was a secret to me -- at the time, individual investors were not empowered the way they are now.)

If, instead of cashing out that money, I had put it into an S&P 500 index fund (which did exist, although it was in its infancy, as well), and I had left the money there without touching a cent, that $12,000 would have been worth $299,470 (dividends included) in 2020. That equates to an average 10.61% annual return, or a total return of 2,396%. Holy nest egg, Batgirl -- I think you messed up!

Luckily, my tale has a happy ending in that I ultimately became a savvy investor who learned that if I leave my job, the best thing to do is roll over that 401(k) money into a self-directed IRA. I have a healthy retirement fund now, but it never hurts to have an extra $300,000 hanging around.

A deck of cards falling on a black surface.

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Hit the books!

Eric Volkman: My personal investing disaster started in the late 1990s, when I bought stock in a business development company (BDC) called Allied Capital. A BDC is an organization that makes investments and loans in small, private companies in the hopes of earning good returns when they grow.

For several decades, Allied, which has since been absorbed by a peer called Ares Capital (AFC), had ruled the BDC space, making smart investments that produced juicy returns and, consequently, a high-yielding dividend.

To me, it was the ultimate "set it and forget it" stock. So I mostly forgot it -- except for those times I had a little extra cash to invest. I usually bought other stocks with that money, but frequently this would be accompanied by a small allocation for more Allied. It got to the point where Allied was around 70% of my portfolio.

Then came David Einhorn, an activist investor who took a very active stance with Allied. His investment vehicle, Greenlight Capital, began shorting the heck out of the company in the early 2000s.

Einhorn was convinced that the company was significantly overvaluing the illiquid securities it had on its books, among other transgressions. And since a BDC essentially is its portfolio, this meant Allied stock was overvalued as well. Hence, Greenlight's short.

An engaged and alert investor would at least take a look at these allegations and spend a bit of time researching them on their own. They were serious, after all, and much of my stock money was tied up in Allied.

But I was not that investor. I was the dupe lulled into inaction by a meaty dividend, a long history of outperformance, and the belief that I -- a former investment bank analyst, for crying out loud! (Don't you know how smart we are?) -- couldn't possibly err by investing in a real loser.

Long story short, Allied's deceptions caught up with it, and the SEC nailed it for various securities violations. The company squirmed away with basically a slap on the wrist, but at that point, Einhorn's arguments were landing with enlightened investors... which still, somehow, didn't include me.

Ultimately, the house of cards collapsed, as did Allied's share price. Ares Capital, knowing a good investment opportunity when it saw one, snapped up its peer at a garage-sale price. With Allied in its pocket, Ares grew significantly larger, and to this day remains a top name in the BDC world.

The big lesson for me here was to always do at least the basic research, and not only before the buy trigger is pulled. Investments need to be monitored constantly, at least to some degree. Also, what analysts/activists/shareholders/business partners say about a company matters; anything seriously troubling or encouraging should be at least glancingly researched.

I wish I could tell that to my two-decades-ago self. Does anyone have a time machine I could borrow?

Horrified-looking man viewing falling stock chart on computer

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Options investing: Respect the structural mechanics

Chuck Saletta: When it comes to the most money I've lost in an unrecoverable way, my biggest investing mistakes have come from using options without fully internalizing the mechanics of how they work. Around the time I first started investing with options, I was on the quest to find Warren Buffett's secret to 50% annual returns. I figured I could combine the leverage of options with a variant on the value investing strategy that made Buffett so rich to have a chance of hitting that goal.

In what has to be the biggest case of beginner's luck I've ever had, I actually shot past that target in my first year trying. Unfortunately, I quickly found out the hard way that the leverage of options cuts both ways. Chastened by that mistake, I altered my strategy and how I managed my account to make it more resilient to the ordinary challenges associated with options investing.

That worked until the COVID-19 market meltdown in March 2020. During that crisis, a combination of the stock market crashing, the bond market partially freezing up, and my broker getting tighter on its margin restrictions led to an incredibly nasty margin call. That drove me to get a deeper understanding of many more of the specific mechanics of how options and margin work, in order to help protect me from walking into that same trap again.

I still don't claim to have all the answers, but it was the lessons I learned from those experiences that helped me recognize just how risky the recent GameStop (GME 3.71%) situation had become. When I first learned that a gamma squeeze was behind the stock's meteoric ascent, I recognized just how much structural and mechanical risk investors were, likely unknowingly, facing.

Once I noticed that there were a ton of expiring in-the-money call options on GameStop open when the market closed on Jan. 29, it became easy to see just how big the mechanical risks had gotten. It became obvious the GameStop party was likely to end, simply from those risks.

In a nutshell: It's one thing to throw a few dollars (or few hundred dollars) at a cause you may believe in. It's something else entirely to be obligated to invest tens of thousands of dollars to buy a financial asset that has little more than forced buying holding up its price. Yet that's exactly what the folks who wound up with in-the-money call options at expiration had with GameStop.

Even worse, brokers let you buy call options without having enough money to exercise those options. As a result, it's very likely that some of those people didn't have enough cash or margin buying power to complete the purchase when the option expired, and their broker automatically exercised the contracts. That drove margin calls and forced selling of the underlying stock -- the mechanically caused reversal of many of the same mechanics that drove its stock skyward in the first place.

I recognized the risk and managed to avoid it -- because I had learned my lesson the hard way about respecting the structural mechanics involved in investing with options. Unfortunately, it appears many others are in the process of learning those same lessons now, thanks to GameStop. Hopefully others -- yourself included -- can learn from our mistakes and not repeat the same ones.