7 Common Investing Mistakes (and How to Avoid Them)

1. Buying Without Knowing What You Own

If you can't explain what the company does in two sentences, you shouldn't own the stock. Understanding the business is the foundation of every good investment.

2. Chasing Past Performance

A stock that went up 200% last year is not more likely to go up again. In fact, it's often more likely to correct. Past returns do not predict future returns.

3. Ignoring Valuation

A great company at a terrible price is a bad investment. Always check the P/E ratio, intrinsic value, and margin of safety before buying.

4. Selling in Panic

Markets drop 10%+ every year on average and 20%+ every few years. If you sell during every downturn, you lock in losses and miss the recovery. Volatility is the price of admission, not a signal to exit.

5. Over-Diversifying

Owning 50 stocks doesn't make you safe - it makes you an expensive index fund. Warren Buffett suggests concentrating in your best 10-15 ideas where you have the most conviction.

6. Checking Prices Too Often

Daily price checking leads to emotional decisions. If you've done your analysis and bought at a good price, checking weekly or monthly is more than enough.

7. Not Having a Strategy

Know your approach before you invest. Are you a value investor? Growth investor? Income investor? Without a clear strategy, you'll bounce between approaches and underperform all of them.