Eight Common Investing Mistakes Made by Private Investors

|Posted on 2nd February 2024 | By Peter Higgins 

“Investing success is two-thirds avoiding mistakes, one-third doing something right.”- Ken Fisher

Private investing offers the opportunity for individuals to take control of their finances and even achieve financial freedom. However, without proper knowledge and preparation, private investors can unknowingly make mistakes that hinder their portfolio investment returns. Of course, because we are human, it is natural for us to make mistakes, and we will be more successful through our continuous learning. To make life a little easier though, this article will look at some of the common mistakes that private investors make and provide insight on how to reduce and even avoid them, ensuring a higher chance of long-term success for your investment journey.

1. Overconfidence

“Overconfidence is a powerful source of illusions, primarily determined by the quality and coherence of the story that you can construct, not by its validity”. – Daniel Kahneman

Most investors are overly optimistic about the prospects for the shares they own, & overconfident in how much they know about said company they are invested in.

The more research undertaken, the more overconfident we can become. Without a strategy to realise our overconfidence and how to mitigate that, every investor will eventually fail.

Psychologists believe overconfidence increases whenever there’s a higher level of expertise associated with a task. It is often said that people who consider themselves to be very smart actually perform worse as investors. Warren Buffet’s business partner, Charlie Munger, put it simply when asked what was the key to his success at Berkshire Hathaway; he said simply one word: “rational”.