Bad Investing Mistakes That Make Me Cringe...

Hey guys, welcome back to the channel! In this video, we're going to be talking about three specific investing mistakes that, in all honesty, these ones like really make me cringe. Like, not gonna lie! And in all honesty, I see people make these mistakes literally all the time. Usually, I just see it in the comments section of just YouTube video after YouTube video. These issues are usually like, if you've been following the channel for a while, you probably won't have any problem at all with any of these mistakes that I'm going to talk about. But generally, what I find is that a lot of, you know, the general mug punters out there, they will always, always fall into one of these three really common investing mistakes.

So with that said, let's get started! We'll jump straight into the first one. The first one I wanted to talk about, and this is probably one of the biggest mistakes in investing period, is people falling into confirmation bias. Now, confirmation bias is the tendency to search for, interpret, favor, and recall information that confirms or supports your pre-existing beliefs or values. And to be perfectly honest, confirmation bias is just a part of being human. It's not like some humans fall into the trap and others don't; all humans do experience confirmation bias in one way or another.

In fact, it is a psychological shortcut that hopefully helps to speed us up in our reasoning process in some tasks. For instance, say you heard like heaps of concerning banging coming from your next-door neighbor's house or something, and you know it sounds like construction. You walk over to your front door or your front window, you have a lookout, and you see this van with tools inside of it and a big commercial logo on the side. You're probably saying, you know, that's probably just construction noise.

But the point here is that you have taken a shortcut; you're interpreting the information in a way that supports what you already believe. Now, in an example like this, it's probably the banging noises. They're probably going to be construction, right? But the point is that if you actually wanted to know what was causing that noise, you would go over and you would actually look at the source of the banging, right? You wouldn't just make assumptions based on other things that you could see.

Alright, so the same applies to investing. To actively seek out or only take in the opinions that resonate or confirm what you already believe is, when it comes to stock market investing, very, very bad. Because here's the thing: the market doesn't care what you think, okay? That's just the reality. The market does not care what you think about this company or that CEO. It doesn't care at all. Essentially, if you have a great company with rock-solid financials and good future growth prospects, those companies, their stocks go up over time.

Okay, on the flip side, if you have a company with holes in its balance sheet, holes in its cash flow statement, swamped with debt, and just bad future growth prospects, then those companies don't perform well over time. That's just the reality. It doesn't matter how much you love the company or how much you think this is a killer stock. At the end of the day, if it's not a great business, then you're most likely going to lose money if you invest in it.

For example, one of the more speculative investments that I've made is in Tesla. Now, to be honest, for me personally, I'm a Tesla fanboy. I'm an Elon Musk fanboy; I love the company, right? I really love it! It would be very easy for me to just sit back and only consume positive opinions around the company, right? It'd be very easy. There are so many YouTubers that cover Tesla. It would be very easy for me to just pick out those channels and just watch those guys and live in this awesome little Tesla bubble where, you know, I just get reinforced with all this awesome information that's telling me that this is the best company I have ever laid eyes on.

But what I should really do, and this is what I do, is that I try and find people or, you know, news outlets that actually think the opposite. So they might come out with articles saying why Tesla isn't a great investment. So a lot of people, when they get into a certain rabbit hole, they believe a certain way, they won't—this is confirmation bias—they won't want to see a differing opinion, so they won't even look.

However, you should actually, as an investor, look for those other opinions. So that's what I do with Tesla. I follow these other people that some of them really hate Tesla. They absolutely hate the company; they hate Elon Musk. And what I'm trying to do is I'm not trying to pick fights or anything; I'm just trying to see the arguments that these people that think the opposite to me, I'm trying to see what their arguments are and see then if I can prove those arguments wrong, okay? Because if I can prove those arguments wrong, objectively, of course, well then that's a good thing! That helps me have a better understanding of whether this company is actually the great company I think it is.

However, if they raise points and I can't objectively prove them wrong, then that's the stimulus where I should start to change my opinion. For example, when it comes to Tesla, for a very long time, the long-standing opinion from the Tesla Bears was that Tesla was going to go bankrupt. I learned a couple of the points that they were making around why it was going to go bankrupt. I looked into it, and I figured out they actually know Tesla wasn't going to go bankrupt.

And then, slowly but surely, the Bear thesis changed into, well, there's no demand for Tesla's; they're just, you know, filling the backlog of orders, and then once they're done with that, there's going to be no demand. So I did my digging, and I researched into the demand; I listened to the conference calls and the questions that Elon answered about the demand of the vehicles, and I figured out that actually, demand is not an issue.

So overall, falling into a confirmation bias is by far the biggest problem, just period, that investors fall into, and I definitely encourage you guys to just step back and recognize that it's human to fall into some level of confirmation bias. But try, as an investor, to detach yourself from that and actively seek out the opinions that go against what you think to see if they do have any credibility.

Anyway, moving on to the second big cringy mistake that I see people make a lot, specifically being a YouTuber and just reading comments, comment after comment after comment. The biggest one—one of the biggest mistakes—is people just thinking that they are absolutely right. Okay, for instance, say I make a video about what I think the state of the market is, okay? And I give an opinion. I'll get maybe 500 comments, and 250 of them will be people saying the market's definitely going to go down from here, and the other 250 will be people saying the market's definitely going to go up from here.

But the point is that half the people think it's going to go down; half the people think it's going to go up. But no matter who you ask, they're absolutely sure! They absolutely know exactly what's going to happen. This is a really big problem with investing. You should never fall into the trap of just 100 percent believing that, yep, I am definitely right, okay? That's just a recipe for disaster.

What you should try and do as a long-term investor that wants to have success over decades and decades is you should detach yourself from your thoughts and beliefs. And like what we're talking about in that last point, we should actively look for information that might prove us wrong, and we should explore those different ideas. We should try and build this antithesis argument and see if we can prove it wrong because that's what the best investors in the world do—the ones that have had success over decades and decades and decades. The Warren Buffetts, the Charlie Munger's, the Peter Lynch's—like all of these guys.

What they do is they never go down the rabbit hole of "I am 100 percent correct, and if you don't agree with me, then you're wrong." You know, I know that I'm right on this. They don't think like that. They form an opinion based on what they know—the objective data that they look at—but they're always open to seeing things that go against what they believe in. Okay? And they explore that. They don't believe that they're always right. They actively look for things that prove them wrong, and that's the sign of a really good investor.

If you are forming an opinion around a stock and then you find some sort of evidence that proves your beliefs wrong, okay? The best investors in the world will have the courage, will have the humility to change their viewpoints, to change their opinions. They look at the facts, and then they make a reasoned opinion based on those facts. And if that means that they have to change their opinion, then they do it. For a long time, Warren Buffett was a big believer in the U.S. Airlines, and recently he sold for a loss because he looked at the objective evidence that proved that, actually, the airlines may not be a great investment going forward for the next 10 years, and he changed his opinion.

He sold out of his position, and he moved on. Again, the market simply doesn't care how sure you are about a stock. The market, over a very long period of time, just cares about the truth. Okay? So as an investor that's going to be investing for a long time, your main objective should be trying to figure out what the truth is, even if it goes against what you already believe. And that's what we're talking about with confirmation bias.

Anyway, so that's the second big trap. The second big cringy mistake that people make is just always thinking that they're right. Oh man, it's just a bad human trait!

Anyway, moving on to the third big massive problem that I see a lot of investors making is that they just end up gambling in the stock market. But more to the point, the real problem here is that they're gambling without realizing that they're gambling. Most investors would do very well to remember Warren Buffett's rule number one of investing, which is: Don't lose money.

If you want to have success over decades and decades investing in the stock market, then you have to get out of the mentality that investing is just like gambling. It's just, you know, taking a punt on one of these companies because that mindset—that is definitely not investing; it's speculating; it's gambling. And like gambling, occasionally it works, and you make money. But if you apply that strategy over a long period of time, then you always come out with a loss. You always lose in the long run.

I mean, let's go back to Benjamin Graham's definition of an investment that he wrote in his first—I think it was like one of his first books, Security Analysis, right? He says that an investment operation is one in which, upon thorough analysis, promises safety of principle and a satisfactory return. Two key parts: safety of principle and a satisfactory return.

At the casino, when you gamble, there is no safety of principle but a chance of a high return. But I definitely wouldn't encourage you guys to take that sort of mentality into the stock market. Essentially, if you take that philosophy into the stock market, then you're going to get the same result as the casino. Right? Sure, it might work out in the short term, but over the long run, you will always come out with a loss.

You know, for example, investing $5,000 into some penny stock where the company is currently just looking somewhere for gold—I personally don't call that an investment. However, if you find a company that is already well established, has great cash flows, got great future prospects, and has no debt, okay, then that is something that I would call an investment. Because in that situation, yes, you're probably going to have that safety of principle, okay? And you're still going to get a satisfactory return.

So overall, I think they're the three really cringey mistakes that I see, you know, people make when it comes to stock market investing. It just really—I really don't like to see it. I hate seeing confirmation bias. I hate it when people just always think that they're right and they cannot see the truth. They just—they have to believe that they're right. And I hate it when people just treat the stock market like they're just gambling. They're just speculating as opposed to making solid investments.

So overall, they're kind of my three biggest cringy mistakes, but I'd love to hear what you guys have to say as well. Are there any that you see other investors make we dislike, or man, I just really want to tell you not to do it like that? I'd love to hear from you guys! Drop that stuff down in the comment section below. Leave a like in the video if you enjoyed it or if you found it useful. I super appreciate it!

But thanks very much for watching, guys! Of course, check out Profit Fool if you wanted to learn my personal investing strategy. I've spoken about it in Unprofitable; I've spoken about both passive investing and active investing. There's two courses over there—full, in-depth, step-by-step explanations. So check that out if you're interested. But that will do me for today, guys. Thanks very much for watching, and I'll see you in the next video!