🛑 Avoid making these costly mistakes
“My system at life is to figure out what’s really stupid and avoid it.” —Charlie Munger
👋 CMQ Investors,
We are stockpiling (no pun intended) academic research and empirical studies re: the most costly mistakes that individual investors make. The three studies below are some of the best we’ve uncovered thus far.
What are the most common (and costly) mistakes that investors make?
[Investors] trade frequently and have perverse stock selection ability, incurring unnecessary investment costs and return losses. They tend to sell their winners and hold their losers, generating unnecessary tax liabilities. Many hold poorly diversified portfolios, resulting in unnecessarily high levels of diversifiable risk, and many are unduly influenced by media and past experience.
Behavioral Patterns And Pitfalls of U.S. Investors
Behavioral finance holds that investors tend to fall into predictable patterns of destructive behavior. In other words, they make the same mistakes repeatedly. Specifically, many investors damage their portfolios by underdiversifying; trading frequently; following the herd; favoring the familiar (domestic stocks, company stock, and glamour stocks); selling winning positions and holding onto losing positions (disposition effect); and succumbing to optimism, short-term thinking, and overconfidence (self-attribution bias).
Why Do Retail Investors Make Costly Mistakes? An Experiment On Mutual Fund Choice
Mounting evidence demonstrates that retail investors make predictable, costly mistakes. They save too little, they trade too frequently, they buy high and sell low, they invest in fad instruments they do not understand, and they pay excessive fees.
Have you listened to this episode? 👇
Warren Buffett’s Biggest Investing Mistakes (16 mins)
Stream via Apple Podcasts | Spotify
