ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Mistakes investors make

Updated on August 6, 2015

The root of bad investing is emotion

I was sitting at my desk a few years ago (2003) and a co worker shouted over the glass “What is the best mutual fund?” I replied I like the Gabelli Asset fund. He shouted over the glass “I don’t see it.” I got up from my desk and walked over to his office and discovered he was looking at our company 401K plan. I told him the best fund in the plan was probably the Fidelity Contra Fund. Upon further investigation I found he had been in a meeting and was convinced the company was going to go bankrupt and he needed to sell his company stock and move it to a mutual fund. He had his entire 401K in company stock and Enron had just gone down. Looking back we worked for General motors which went broke only a few years later. I began to teach about the concept of asset allocation and spreading his risk when he stated he did not have time for that. I made the recommendation that he put his money in a target retirement fund. He was vehemently opposed to that so I recommended the total market index fund. I stated that if you are going to put all your money in one fund and you want it all in the stock market the total market index is by far the best choice. A few clicks of the mouse he moved his fortune into the total market index and ran off to another meeting. I admire this guy. He worked all of the overtime he could. His wife clipped coupons and his hair. His 401K was worth over a quarter million. Doing a great job of investing his money was not something he wanted to do. He was very wise to take his money out of General motors stock!!

Why would a man who was so conscious of money be so careless with his investing? I never asked him that but I am sure it was not logic it was emotion.

I write in my hub “How much company stock should you keep in your 401K?” about a man and his wife who kept all of their money in their employers company stock. In this case the couple was convinced that the companies they worked for were good solid companies. Time has shown these were not good choices.

Make good choices!

So what are the mistakes investors make?

Other than the examples I give above there are many. Many people like to buy a hot stock. I have seen people put their fortune into gold mining stocks, ethanol stocks, oil stocks when the price of oil was at record highs and new ventures that never panned out. I had a guy tell me he always picked the fund in his 401K which made the most on a flyer he had. The problem was the flyer was three years old and he was investing in a sector fund which invested primarily in Japan.

Back in 1999 and early 2000 I saw people buy stock mutual funds like crazy only to sell the funds a few days after 911 at a huge loss. I have seen options schemes to make big money really fast as well as huge investments in penny stocks.

Jesse Livermore who some believe was the greatest stock trader of all time realized how devastating trading on emotion can be. He hired psychologists and mathematicians to aid in his trading in the stock market.

My recommendation is to develop your own asset allocation and invest in the best funds in those asset classes. Once you have an asset allocation select the best small cap, best mid cap, large cap, bond, and even concentrated portfolio funds for their portfolio.

Regardless if you are investing in your IRA, 401K, 403B or taxable account invest your money wisely. How you invest is equally as important as how much you invest.

Comments

    0 of 8192 characters used
    Post Comment

    • errorsomi profile image

      errorsomi 

      8 years ago

      Great Hub Daddy Paul!

    • chan0512 profile image

      chan0512 

      8 years ago from Camarillo, CA

      Thanks for sharing!

    • mulberry1 profile image

      Christine Mulberry 

      8 years ago

      Simple logic should tell us "don't put all of your eggs in one basket". I'm not always thrilled with my fund choices, but I'm certain they have helped me avoid disaster on several occasions.

    • sheila b. profile image

      sheila b. 

      8 years ago

      How wise and practical and true.

    • Sandyspider profile image

      Sandy Mertens 

      8 years ago from Wisconsin, USA

      Thanks for the tips.

    • Daddy Paul profile imageAUTHOR

      Daddy Paul 

      8 years ago from Michigan

      Property-Invest

      Thank you.

    • Property-Invest profile image

      Property-Invest 

      8 years ago from London

      Hi Daddy Paul. Thanks for your great hub and for emphasising that proper investing involved a strategy, formula or plan and not emotion.

      All the best in future hubs!

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)