Honestly, most people lose money in stocks. If you don’t want to fall into that statistic, you have to know what to watch out for. 5 of the most common culprits of stock market failure and how to overcome each… Coming up! Hey, how are you? It’s good to see you! Once again we continue on our quest to help you build out your rapidly-growing, highly-diversified net worth, one video at a time. Investors make mistakes in the market all the time, that’s one of the reasons there are opportunities for us to generate outsized returns. In this video, we’re covering 5 of the worst and most common mistakes. (And I bet, even if you’ve watched other videos like this, you haven’t heard #5 before…) If you aren’t prepared for these, you should not have money in the market. And if you haven’t already seen the deep dive video into the #1 mistake all investors make, you should make a note to check it out after this one! …because if you don’t avoid that huge mistake, you’ll be helpless against these five.
Massive mistake #1, is that most investors panic! When you really think about it, on the whole, most of the time the market moves predictably. It’s relatively sideways, often with an upward slant. Because that’s only what’s happening most of the time (at least for the last several decades), that’s what we come to expect. After a decade, we forget that markets go down too. Not in theory—I mean, we admit that it happens, right, obviously markets come down—but in practice, we don’t actually know or remember how that feels. We’re not prepared. And because it happens relatively rarely, we don’t know how to prepare. But when it does happen—when the market does fall—it can fall fast and hard.
And even though that may only happen once every decade or so—each crash unpredictable and …different than the last—that’s normal and should be expected. Now here’s something that other financial experts won’t say: I’m not going to tell you blindly that you’re wrong to panic… If you don’t know why you’re invested the way that you are—you don’t understand the reason you have each of your underlying investments—you didn’t initially invest preparing specifically for the possibility of a crash… then maybe you should panic. Maybe you should pull your money out of the market. In fact, you probably should right now and invest some time in understanding why you’re invested the way that you are. And in creating an investment plan that is prepared come what may. That’s one of my goals with this channel, to give you everything you’ll need to get there. So if that’s your goal too, and you haven’t already, consider subscribing. Also, if you want to supplement my videos here, you can check out the free course on this subject at Spicer Capital University.
It’s four hours of video content will help you overcome this huge mistake. Ideally, you want to be in a position of investment confidence as everyone else… …who isn’t subscribed to this channel… …is panicking. You can observe the chaos with a cool head… …because it’s during that inevitable chaos that we’re going to find some of our best opportunities to outperform long-term! (But that’s an exciting subject for another time…) Massive mistake #2 is that most investors succumb to euphoria! Also known as herd mentality… …this one is similar to the first in that it is driven by our emotions. As we see others profiting from a market climb, its hard to stay on the side-lines—even when we don’t understand, or when we entirely disagree, with the investment premise—a lot of people still jump in! In fact, it’s the most disciplined investors who will actually suffer more… Carl Richards, in The Behavior Gap, explains: The terrible irony in all this is that the people who are trying the hardest to stick to their plans—the ones who hold out the longest before they finally capitulate—are the ones who end up getting hurt the worst because they buy nearest the peak.
Once those hard-core holdouts give in, you know the top can’t be far away, because there is no one left to buy. —Carl Richards And in my mini-book, Stop Investing Like They Tell You, I posit that: the opposite is also true. As markets free-fall, it’s the “disciplined” investors who hold out the longest—and suffer the most—prior to their ultimate capitulation. This euphoria/panic combination has historically knocked out countless investors. The third common mistake is Trading too Frequently Now if you’re a day trader the mistake becomes trading on emotion instead of your rules, but the negative effect on your long-term returns is the same. I have a longer time horizon than a day trader and most investors do, as well. But when you become consumed by short-term fluctuations, that’s when you’re going to underperform. Not only will you underperform, but you’ll lose more and more money to commissions. (Which is a major subject of our video exploring your personal broker options and my top recommendations, which I’ll link to in the description below.) Once again, you see your emotions working against you here.
The solution is to have a plan before you enter each and every position. Based on what you know, play out every possible scenario in your head. In his interview with Colm O’Shea, in Hedge Fund Market Wizards, Jack Schwager summarizes: O’Shea views his trading ideas as hypotheses. defines the price point that would invalidate his hypothesis before he makes a trade. And then has no reluctance on liquidating that position. Almost nobody does this. And we could do an entire video series on this practice, how you can do it, and why it’s a good idea. If you’re interested, let me know in the comments. The bottom-line is that investors who trade on emotion, which happens when you don’t prepare for it ahead of time, and worry too much about short-term moves end up making a lot of expensive, bad decisions. The fourth big mistake is getting emotionally attached to a stock I’ve actually heard some industry authorities recommend you invest in companies based on your emotional attachments to them and that is the…
Complete. opposite. of what you should do. That is… dangerous. Emotions have no place in investing. That’s what makes it difficult. Because we are emotional and instinctual creatures by nature. But as you watch my videos or do any deeper research on the subject yourself, it becomes obvious that human emotion, in some way, is the primary force impeding most people’s investment success. Before you make the decision to transfer your money from cash to the stock of a company, or wherever, you need to have analyzed that investment and have a plan. You need to have rules in place. And then you just need the discipline required to stick to those rules. But if you don’t—if you decide to skip this part—if you just take a position because you like it or some other emotion-driven reason, you probably shouldn’t be trading on your own. And that’s okay… don’t feel like you have too.
Now, that process I just outlined of emotionally evaluating each trade before its made, is deep and more advanced. But it’s pretty imperative to lasting investment success so you can bet that on this channel we’ll dissect every aspect of that further to make it really easy for you to follow and thrive. Investment Mistake #5 is that most people are actually speculating when they think they’re investing… If you don’t fully understand why you’re invested in a certain way, you might be a speculator.
If you don’t know when you plan to get out. You’re just “playing it by ear…” You might be a speculator. If you heard a good idea, didn’t have time to research it, but took a position just in case so that you don’t miss anything… You might be a speculator. If you just liked the prospects of a company’s product, so you bought some shares. You might be a speculator. You haven’t completed your own analysis of the company’s financials or you have no basis for any assessment of a fair value. You are speculating. Far too many individual stockholders in the market, have never gone through any sort of formal analytical process to come to an educated decision about the investment they’re considering.
If that’s the case, at best, you’re speculating, at worst, you’re gambling. Both can be disastrous long-term. I put together a short video series explaining the differences between investing, trading, speculating, and gambling. I’ll link to it in the description and in a card. Especially, if you hold individual stocks, or would like to, you should check that out. And if you’d like to learn more about that analytical process, at the end of this video and in the description, I’ll link to a playlist I’m building for you on fundamental analysis. And of course, stay tuned, cause we’ll definitely be covering that more over time here on this channel.
Now, I want to hear from you. We just covered 5 of countless mistakes new investors make. What are some others you’ve seen or experienced yourself? If this was helpful, as always, let me know with a like and a comment. And share with anyone you think it would benefit. If this is your first time joining us, I hope you’ll subscribe, click that notification bell, and start your journey to building your rapidly-growing, highly-diversified net worth, one video at a time.
Here’s that playlist for you and another video that might help. I’ll see you in one of those… Take care. .
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