The 10 WORST Investing Mistakes to Make (Investing For Beginners)

One of the trends we've seen over the past few years is there's been a lot of new investors entering the market. In Robin Hood's most recent quarterly data, they showed that in the past 12 months, they've doubled the amount of funded accounts. In their S1 filing, they showed that over 50 of their users are new to investing altogether. This is a great trend to see because it means more and more people are switching on to stock market investing, which in the long run will serve them very well.

But no doubt the stock market is a tricky place, and there are a lot of mistakes that beginners commonly make that actually seem counter-intuitive at face value. So in this video, I've listed 10 common mistakes that beginners make, and we're going to talk about them and, more importantly, how to avoid them.

This video came 10 investing mistakes. I know personally I've made a lot of these myself, so trust me, I know from experience that these ideas do not work.

So mistake number one is simply investing because the market's going up. This is a very common misconception because it's actually when the market's going down that you should really get excited, not when it's going up. You know, as Warren Buffett says, "Be greedy when others are fearful and be fearful when others are greedy." So it's hard to understand this at the start of your investing journey. But when everyone is talking about the stock market and the market is just trending up and up to new all-time highs, usually that's not a great time to invest.

In fact, if you really want to make a lot of money over the long run in the early days of your investing career, you want the stock market to go down. You want tomorrow to look even gloomier than today. You want the market to fall off a cliff. You want the lowest possible start point. Buy low, sell high, as they say. So if you want to make a lot of money over decades, hope that the stock market goes down tomorrow. Lower entry prices make a big, big difference in the long run.

All right, moving on to mistake number two. This one flows on well from the first tip. We're just talking about mistake number two, which is buying a stock without understanding the intrinsic value. So shares are not just pieces of paper; remember they represent real ownership of a business. You buy Apple stock; you own a part of Apple's business. You need to know what Apple's value is so that you have context as to whether the shares are cheap or expensive.

So how do you do that? Well, Apple sells stuff. At the end of the year, the business will have generated a certain amount of cash flow. You need to assess how much cash flow Apple has made in the year and how much it will make in future years to see whether you want to buy the business at its current market cap or stock market value.

So consider this: Imagine if you had a money printing machine that could print one dollar per day. Would you pay a million dollars for it? No. Would you pay ten thousand dollars for it? Probably not. But would you pay fifty dollars for it? Oh yeah, because in 50 days, you've made your money back and then you're just printing one dollar a day for free for the rest of time.

And so it's the exact same equation when it comes to stocks. Now, I won't get into the specifics of the discounted cash flow model in this video, but if you would like to know more about that process, just check out the card that's coming up on the screen right now. But definitely have an idea of how much the shares are actually worth before you go and buy them.

All right, moving on to mistake number three. Mistake number three is investing in something because your friend bought it. You know, just do not do this because what does your friend know? And even if they studied economics and finance and commerce and international relations and everything under the sun, at the end of the day, stocks that are right for them are not going to be the same as stocks that are right for you.

So you will have different financial goals than them. You'll have different areas of interest and knowledge. You might have different investing time frames in mind. Maybe they want to day trade, whereas maybe you want to invest for the long run. Long story short, don't copy your friends' moves.

Furthermore, mistake number four: just don't listen to stock tips, full stop. You know, you might watch some YouTube videos—five stocks I'm buying this month. Please don't invest in those stocks unless you've gone in and done that research for yourself. You might hear a fund manager talking about a stock on CNBC. Please don't buy just because they did.

Just think about it like this: What are you going to do when that stock goes down 30% in one day? Don't know? Is there a fundamental problem with the business? Should you sell or is the stock now hugely discounted and you should buy it? You just won't know, and that is a scary place to be. So don't follow stock recommendations. Just do not do it.

Then moving on to mistake number five. This is a big one that I just hinted at. It's buying something that you just don't understand. This is Peter Lynch's classic line: "You have to know what you own." The single most important thing to me in the stock market for anyone is to know what you own.

I'm amazed how many people own stocks they would not be able to tell you why they own it. Actually, if you really press them down, they'd say the reason I own this is, "The sucker's going up," and that's the only reason. That's the only reason they own it. And if you can't explain—I'm serious—you can't explain to a ten-year-old in two minutes or less why you own a stock, you shouldn't own it.

I love that clip. People love to own stuff that sounds cutting edge, that sounds like the next big thing, but it's also stuff they know nothing about. I mean, if you love Big Macs and you know nothing about graphics cards, then look into McDonald's and don't bother looking into Nvidia. Just stick to companies that are within your interests, within your circle of confidence. Look for simple businesses, ones that you get that stand out to you. You do that, and you have a much better investing experience.

All right, now shifting gears a little bit here, the sixth mistake I wanted to talk about is quite simply not playing the long game. I'm going to break some hearts here, but honestly, stock market traders don't make money; they make money teaching other people how to trade. Then those traders inevitably don't make money either, so they start a YouTube channel about how to trade, and that makes them money.

So short-term stock trading simply doesn't work reliably. But you know what does work? Investing with a long-term horizon. You know, if you really commit to being in the market for more than 10 years, then so much of the stress of investing just goes away. You know, "Oh, what? The market just crashed 50% yesterday? Great. What's that? My portfolio is down 60% in three weeks because the banking system is collapsing? Awesome."

If you're committed to long-term investing, then when the market is going up, you win; but when the market is going down, you also win. Because if the market goes down, then you're being gifted a rare opportunity where great long-term investment opportunities are being handed to you at bargain basement prices. So stay strong and go long.

Then moving on to investing mistake number seven. This one is buying a business that doesn't have a moat. You know, without a competitive advantage, this is one of the cardinal sins of investing. You know, if you buy a business without a competitive advantage, then you are gambling. Why? Because there's nothing protecting that business from its competitors. How do you know that that company will even be around in 10 years?

You know investing in wide moat companies substantially reduces the risk of permanent loss of capital because they have an intrinsic characteristic that naturally keeps them protected from their competitors. Here's a company with a moat: Apple. I hate Apple. Their products are the same as everybody else, except double the price. Well, you might think that, but there's a reason why they can do that. It's because they've got a massive brand moat, and they've built a huge ecosystem, which is called a switching moat. They've got the moats which secure their competitive position.

You know, Facebook? Huge network effect. No social media company even comes close. Coca-Cola? Big brand moat. There are plenty of other cheaper cola drinks; Coke outsells them at three times the price. If you're going to buy a stock, make sure it definitely has a competitive advantage, and thank me later.

All right, now moving on to mistake number eight. This one's tough to hear, but a big mistake is thinking that you're an expert. You know, in investing, I would call select few people experts, and to be honest, those people probably wouldn't even call themselves experts. You know, one of the downsides of the market we've been in over the past few years is that a lot of people just haven't experienced a big loss yet.

And the reality is, you know, if you've bought a stock at any time over the past few years, you've probably made money. And no doubt when you're sitting at four and oh, that makes you feel like you're really getting the hang of this investing business. But please don't get complacent. Stay humble. Always go in thinking you're missing something; assume you're wrong, and you'll end up doing much better over the long run.

All right, with that said, we've got two to go. The second last mistake I wanted to talk about is something called confirmation bias. Now this is where you tend to seek out information that supports your hypothesis and you tend to reject information that goes against it. Now everyone falls prey to confirmation bias. You're human; you can't avoid it. But we can recognize that we are susceptible to it, and we can take measures against it so it doesn't affect our investing.

So how do we do that? Well, we do it by inverting our investment hypotheses. You know, once you've got a hypothesis—you think the stock is good—force yourself to list out all the reasons why it might fail. See what the bears are saying about the stock; then see if you can logically dismiss those arguments using data. That's how you combat confirmation bias in investing. Always invert. Force yourself to play devil's advocate.

So overall, that's confirmation bias. And now the last investing mistake I wanted to bring up is quite simply not keeping up with the company once you've invested in it. I mean, we do so much research to make sure we're ready to buy this thing, but a lot of the time once we've bought in, we just kind of forget about it. We don't keep up with it.

I mean, if you're going to buy a stock, you have to keep up with what's going on because things change. Businesses change over time. Growth rates change. Customer trends change. So make sure you read each quarterly report, listen to the conference calls, and don't let it slide off of your radar because you know what will happen, right? As soon as you stop paying attention, something bad will happen to the company. It's just the investing gods wreaking havoc.

So don't forget. Keep tabs on what's going on, particularly easy to do if you're sitting on a big unrealized gain. So don't let that gain wash away because of laziness.

And guys, with that said, they are my top 10 investing mistakes that beginners tend to make. Now, I guess now that you know all of them, please go ahead, write some of them down, stick them up on your wall because, as I said at the start, I definitely fell prey to many of these mistakes when I was first starting out, and they definitely sting you.

But anyway, guys, hope you enjoyed the video. Leave a like on it if you did enjoy it or if you found it useful. Subscribe to the channel if you're new around here. And if you're interested in how I go about my investing, you can check out profitable links down in the description below if you would like to learn more about either passive investing or active investing.

But guys, that would just about do us today. Thank you very much for watching, and I'll see you guys in the next video.