7 Painfully Common Investing Mistakes to Avoid Right Now

Good judgment comes from experience, and experience comes from bad judgment. -- Rita Mae Brown

Rita Mae Brown was probably not referring to investing when she offered this nugget, but it applies well in this space. New investors have little experience and make mistakes. Ideally, they learn from them and, over time, become experienced investors, making smarter moves and fewer mistakes.

Still, it's always good to review common investing mistakes in order to avoid making them -- and that's true for more experienced investors as well as newbies. Here are seven common mistakes to avoid.

Image source: Getty Images.

1. Putting off investing

For starters, many of us start investing far later than we should have. It's regrettable because our earliest invested dollars have the longest time frame in which to grow.

This table illustrates this. Imagine, for example, that you ended up saving and investing for 25 years before you retired. Then see how much more you'd have, had you started five years earlier.

Data source: Calculations by author. 

Of course, you can't go back in time and start investing sooner -- but you can stop putting it off. Starting now instead of in five years can make a huge difference in your results. Starting to save more aggressively and investing more effectively right now can be powerful, too.

2. Thinking a low-priced stock is cheap

Many people see a stock priced at, say, $10 per share, and think it's cheaper -- more of a bargain -- than a stock priced at $50 or $200. That's far from true. A stock's price alone tells you very little -- unless the price is below about $5, in which case it's a penny stock and probably extra risky.

You usually need to compare a stock's price to at least one other number to get much meaning out of it. For example, multiply the stock's price by the number of shares outstanding to arrive at its current market capitalization, or market value. Now imagine two stocks, each priced at $10. If the first has 1 billion shares outstanding, its market cap is $10 billion. If the second has 50 billion shares outstanding, its market cap is $500 billion, and it's a far bigger company.

Comparing a stock's price to its earnings will give you its price-to-earnings (P/E) ratio, and comparing it to revenue gives you its price-to-sales ratio. These offer rough ideas of how overvalued or undervalued (or perfectly valued) the stock may be.

3. Following the crowd

If you're grabbing shares when everyone else is, you're following the crowd and may be buying overvalued stocks that have been bid up beyond their intrinsic value by overexcited investors. (This is especially likely to happen with growth stocks.) If you're selling because the market is crashing, you're also following the crowd, and you may be unloading perfectly good stocks at low prices unnecessarily, before they bounce back. Read up on investing to gain some well-grounded perspective and be able to make your own decisions.

4. Trying to get back to even

Here's another common investing mistake: Trying to get back to even on a stock that's below where you bought it. Imagine, for example, that you bought 100 shares of Scruffy's Chicken Shack (ticker: BUKBUK) at $50 apiece, for $5,000. The shares are now down to $30 apiece, and you're sitting on a loss of $2,000, with shares now worth $3,000.

If you think that Scruffy's future is still golden and that the stock will recover and go on to new highs, as many fallen stocks do, hang on to your shares. But if something has changed and you now wish you didn't own the shares, perhaps due to a scandal, poor sales, or the company losing market share to competitors, then sell -- don't hang on, waiting for the shares to hit $50 again before selling.

They may never recover to $50, and you're losing time in which that remaining $3,000 could be working and growing for you. Sell and move the $3,000 into an investment you really believe in. You'll likely have a greater chance of making up the $2,000 you lost in the new investment.

Image source: Getty Images.

5. Not researching companies

If you're investing in individual stocks, don't just listen to what someone tells you to buy or act on an article about a promising company. Do your own research before making any decision.

You'll need to learn how to study the companies, learning what their strengths and weaknesses, challenges, and opportunities are. Learn what their business model is, too -- how they make their money. A website might seem like it makes its money by selling things, but it might make more via online ads. Another company might make money via subscriptions to a product.

Also, learn how to read financial statements so that you can get a good handle on how quickly companies are growing and whether you see any red flags, such as fast-growing debt, or inventories growing at a faster rate than sales. (Note: If all this sounds like too much work, just stick with low-fee index funds, which are easy, effective long-term investments.)

6. Not keeping up with your holdings

Once you buy into various stocks, it's also important to keep up with those companies over time. At the least, read their quarterly and annual reports, but ideally, check in with them more often than that, following them in the news.

Doing so can help you get to understand their business better, and it can also help you notice if things start heading south. The company's financials might show sales growth slowing, for example. If its stock price starts slipping significantly, dig into why that's happening. You don't want to end up blindsided if it crashes later.

7. Being impatient

Finally, be patient. Trust in your research and convictions, and wait it out for years or even decades while great companies you invest in grow. They won't always do so in a straightforward fashion, and there will likely be pullbacks. It can be hard to do, but stay the course. (Of course, if your research and keeping up with a company causes you to lose confidence, consider selling.)

The table above shows what can be achieved over long periods through stock market crashes and corrections.

These are some common blunders made by new investors -- and many seasoned investors make them, too. The more kinds of investing mistakes you learn about, the more of them you may be able to avoid making. Investing mistakes can be very costly. The more you know, the more money you may be able to make.