20 Investing Mistakes I Have Made

I've been investing since the mid-1990s or so -- a span of about 25 years. I've done pretty well at it, but I've still made regrettable errors -- many of them. Making errors is unavoidable if you're going to be an active investor, but if you take the time to read about great investors and learn from their mistakes, it can save you a lot of headaches and keep losses to a minimum.

You can even learn from me. Here are just 20 of the mistakes I've made.

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For starters, my investing life began later than I wish it had. It could have been a lot worse, though. I got my financial wake-up call while still in my 30s, giving me a good 30 years to save and invest my money before retirement. Had I started in my mid-20s, though, I would probably have a lot more money than I do now.

To appreciate what a difference starting early makes, consider this: If I'd socked away $3,000 per year for 25 years, with an average annual growth rate of 8%, I'd end up with about $237,000. If I'd done so for 35 years, I'd end up with about $558,000 -- more than twice as much.

ALSO READ: We Ask Successful Investors: If You Were Starting Over With $5,000, What Would You Do?

Another mistake I've made is seeking investment ideas from just about anyone. Like the proverbial hot stock tip you might get from a well-meaning but not investing-savvy neighbor, I would read about seemingly exciting companies in a magazine or online without knowing how much I should trust or respect the source. After all, many journalists are not good investors, and many money managers don't have above-average track records.

Many investors make the mistake of investing in too many stocks, and I've done so, too. There's no perfect number that any of us should own, but consider that you'll need to keep up with each of your holdings, ideally at least quarterly when they release their earnings, and that can take a lot of time if you own many stocks. Also, spreading your money too thin means that none of your holdings will be able to make a big difference in your portfolio. For example, imagine that Scruffy's Chicken Shack (ticker: BUKBUK) is one of 100 stocks in your $100,000 portfolio and makes up about 1% of it, with your shares worth $1,000. Now imagine that Scruffy's stock doubles in value! It would then be worth only $2,000, though, and not make a big impact on your overall portfolio.

Diversifying widely can make sense if you have little conviction in the stocks you own, but in that case, perhaps just opt for a low-fee, broad-market index fund. Otherwise, take the time to learn to invest and focus your money on your best ideas -- perhaps around 15 to 20 of them.

While you can have too many stocks in your portfolio, you can also have too few. It's OK to just have a few as you begin and add positions over time, but if your portfolio is established and you have only, say, three holdings, you've got all your eggs in only three baskets. Should one stock implode, it can have an outsized bad effect on the portfolio.

You're also underdiversified if one or more holdings have grown so much in value that they now make up a very big chunk of your portfolio -- perhaps significantly more than 10%. That's happened to me in the past, and I wasn't always quick to rectify the matter, because if a stock is soaring, who wants to remove shares?

ALSO READ: Here's How Investors Can Build a Diversified Portfolio in a Matter of Minutes

If you're going to invest in individual stocks, you'll need to learn how to study them and figure out if they're undervalued or overvalued. In my early days, and occasionally even now, I have invested in a company rather hastily. Sometimes that works out, but often it doesn't -- because I don't have a good handle on just how the company makes it money (its business model) and what its challenges and opportunities are. For example, McDonald's (NYSE: MCD) is different from many of its peers because it owns a heck of a lot of real estate, instead of letting most of its franchisees own their own properties.

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We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

Along with not researching plenty of companies sufficiently before investing in them, I have also failed to keep up with many of them -- that can be disastrous if it means you miss out on inauspicious developments and don't see red flags. In many cases, I didn't keep up with the companies because I didn't really understand them or their industries very well. That's never good. If you're going to invest in bank stocks, it's smart to learn about the banking industry and to keep up with its developments. If you're going to invest in biotech stocks, be sure you have a good grasp of biotechnology. There's no shame in admitting that some industries are just too hard or unfamiliar -- that's called finding your circle of competence and sticking within it, as Warren Buffett has advised doing.

Here's an embarrassing mistake, and one I made in the past few years: confusing ticker symbols. I remember chuckling about others in the past who ended up investing in the wrong companies instead of the ones they intended to. But it happened to me, too, when I thought I placed a trade order for Blueprint Medicines (Nasdaq: BPMC) but ended up with shares of bluebird bio (Nasdaq: BLUE). When placing orders, be careful and double-check that you're getting the number of shares that you want of the company that you want.

Impatience is not likely to lead to good results in investing, but many beginning investors, including me, are impatient. You invest in a terrific company and have high expectations, but a few months later the stock hasn't moved much. Maybe it even dropped in value! So you sell your shares and buy into another company, and the same thing may happen with it. Great companies will appreciate in value over time, but that won't happen in a straight, upward line. It will be a jagged line, with ups and downs and stagnant periods. Buy into companies you believe in and then give them a lot of time to deliver. Be patient.

ALSO READ: 4 Stocks I'll Hold Forever

This mistake is related to the previous one: impatience. When I was impatient, I would often buy and sell stocks frequently. I'd be unimpressed with the six-month performance of one stock when I'd read about another, seemingly more exciting one. So I'd sell the former and buy into the latter. All that buying and selling can be costly. You can miss out when the companies you sell finally make big moves, but also, all that buying and selling can result in lots of short-term gains, which are taxed at your ordinary income tax rates, not the generally lower long-term capital gains tax rate that's 15% for most of us and 320% for higher earners. Also, many good brokerages are charging $0 for trades these days, but back when I was churning my portfolio, they weren't. I was paying $10 to $20 or more each time I placed an order.

Another classic investment mistake is investing with margin -- which means investing with borrowed money. It can be tempting, as it can amplify your gains, but it can amplify your losses, too. Imagine, for example, having $50,000 and borrowing $50,000 from your brokerage. If you invest that total of $100,000 and it doubles, it will be worth $200,000 -- all from your $50,000. Once you pay back the $50,000, you'll have tripled your money. But if that $100,000 instead falls by 50%, to $50,000, once you pay back the $50,000, you'll have a total loss. These examples omit interest costs, which make matters worse, because brokerages don't lend you money for free.

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We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

Penny stocks -- those trading for less than about $5 per share -- can be mighty tempting, too. If you have $1,000 to invest, being able to buy, say, nine shares of Apple (Nasdaq: AAPL) may not have the appeal of being able to buy 10,000 shares of a stock trading for $0.10 per share. Of course, extra-low-priced stocks tend to be very risky, as they are very able to fall even further. Never focus on the number of shares you own. Focus on investing in high-quality, promising companies. A $400 stock can double, just as a $20 one can.

ALSO READ: About to Buy Penny Stocks? Look at These 3 Companies First

Like impatience, sentimentality has no place in successful investing. It can be tempting to want to stick with some of your stocks no matter how far they fall or how much they lose their luster, if you're emotionally attached to them. One might be the first stock you bought, while another might be a company you just love and love owning shares of. If that's the case, just buy a T-shirt with the company logo on it, or a decal for your car. Understand that some companies you love will not be great long-term investments.

Super investor Warren Buffett is famous for advising us to be greedy when others are fearful and fearful when others are greedy. It makes good sense, but it's hard to do. Back before the internet bubble burst in 2000, I had been greedy when others were greedy. Lots of us naive or delusional investors were assuming that stocks that had already soared would keep soaring. They didn't. Indeed, many companies ended up out of business entirely.

One of my most valuable investing epiphanies was when I realized that if I was in the red on some stock I no longer really believed in, I shouldn't just hang in there hoping it would rise enough for me to regain my losses and break even. Instead, I should just sell, realize a loss, and put whatever value remained in a stock that I did believe in. I was, after all, more likely to see that remainder grow in a stock in which I had plenty of confidence. Invest in your best ideas, not just good or so-so ones.

ALSO READ: When to Sell Stocks

Here's a silly mistake I made that I suspect many beginners have also made: Back in the early 1990s, I read about an emerging markets mutual fund that had soared 82% in the past year -- 82%! I figured that emerging markets would keep emerging and felt like I'd discovered a secret path to vast wealth. Nope. That was just an outlier of a year. I don't think the fund ever had a year like that again, as most wouldn't. I learned to take note of extremely good or bad years in a mutual fund's record, especially when looking at its average performance over time.

Good investors need to have reasonable expectations. You can hope to average 20% annual gains over the long run, but that's hard to achieve. The stock market has averaged close to 10% over many decades, but it could well average much less over the 10 or 20 or 30 years in which you're investing.

5 Winning Stocks Under $49
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

Remember when the internet bubble burst in 2000? The S&P 500 dropped by about 9% that year, followed by drops of 12% and 22% in the following years, 2001 and 2002. Well, I bought my first home in 2003, after all that carnage, and I had to sell some stocks to generate a down payment. It wasn't a disaster, as I'd saved some cash on the side for that purpose, and the stock market had a good year in 2003, rising around 29% by year-end. The lesson here is to keep short-term cash -- money you'll need in the next five, if not 10, years -- out of stocks, as anything can happen in that period.

Before the internet bubble burst, I was not alone in checking my portfolio every hour or two, as it just kept rising in value. It was fun to see how much richer I got on many days. That's not a great practice, though, as it can foster too much obsessing about the stock market and can even lead to trading too frequently. Warren Buffett has quipped that he'd be happy if the stock market were open only one day a year. That reflects a rational approach to stock investing -- buying great companies and holding them for the long term.

Then there are dividends -- full of potential and a few traps, too. Investing in healthy and growing dividend-paying stocks is a very smart thing to do, but you need to know what you're doing. For starters, don't just seek the fattest dividends you can find, because many of those are tied to companies in trouble: When a stock's price falls, its dividend yield rises. Be sure that you research the health and potential of any dividend payer, to make sure it looks likely to prosper and to keep paying you those dividends. Look for dividends that are being increased at a good clip, too, because that can turn a solid payout into a fat one over time.

ALSO READ: 2 Dividend Stocks You Can Hold for Decades

In my early investing days, as I would dream of building great wealth, like a million dollars, I ignored inflation. That's a mistake, because inflation shrinks your purchasing power over time, and by a lot over long periods. Here's an eye-opener, using an inflation calculator. Imagine that in 1990, you're aiming to invest for 30 years before retiring in 2020, and you are shooting for a retirement nest egg of $1 million. That may seem like enough money, but in 30 years, it won't go as far. Indeed, by 2020, you would need $2 million to be able to buy as much as you could with $1 million in 1990. Learn more about inflation and how to keep it in mind when investing.

A final mistake I've made (many times) is not having a selling plan. I may know why I buy a stock, and may enjoy watching it rise in value, but very often I have not had any idea of when I'd sell it. You might avoid this by jotting down when and why you'd sell a stock whenever you buy one. You might also plan to assess a stock's value every now and then, to make sure it hasn't become so overvalued that it's likely to retract or so undervalued that you might want to snap up more shares. It can help to keep up with the company in the news.

5 Winning Stocks Under $49
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

After reading about all these blunders, you might think I've failed as an investor. I've actually done just fine, though -- because we all make plenty of mistakes, and you will, too. Just try to learn from others' errors, to minimize your mistakes and maximize your performance.

Selena Maranjian owns shares of Apple, Bluebird Bio, and Blueprint Medicines. The Motley Fool owns shares of and recommends Apple and Bluebird Bio. The Motley Fool has a disclosure policy.