Five mistakes Investors make

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Investors don't fail because they pick the wrong stocks. They fail because they fall into predictable psychological traps. Like tennis players who win by making fewer errors than their opponents, everyday investors succeed primarily by avoiding common mistakes.

Here are five critical pitfalls that derail even the smartest investors – and a suggestion how to avoid them.

1. Believing the Future Is Predictable

If someone told you that in one year from now, it will be exactly 76° with rain starting at 2 p.m., nobody would believe you. But that's exactly what we will accept from financial forecasters.

We naturally seek certainty in an uncertain world, driving us toward the folks who claim to know where markets are heading. This is the simple truth. Financial markets are complex systems with millions of interacting variables. Even the most sophisticated forecasting models have track records barely better than random chance.

Solution: Focus on what can reasonably be forecast. While tomorrow's market movements are unknowable, long-term patterns are more reliable: over extended periods, diversified stock portfolios have historically outperformed bonds and cash, despite greater short-term volatility.

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2. Obsessing Over Short-Term Noise

Today we are hyper-connected species. We're bombarded by constant financial headlines designed to capture attention rather than provide perspective. This creates an illusion that daily fluctuations truly matter for your portfolio.

They rarely do.

The factors that typically determine investment success – demographic shifts, productivity trends, long-term economic patterns – they all develop slowly and aren't typically highlighted in headlines. If major news breaks, our instinct is to check our portfolios immediately. Research shows this is precisely when we're most likely to make costly emotional decisions.

Solution: Create distance between yourself and market noise. Consider checking your portfolio quarterly rather than daily. When dramatic news breaks, go for a walk instead of logging into your brokerage account. I think this is where a lot of people find success in having someone else manage their portfolio, it brings some emotion it the decision making because it isn’t their personal account.

3. Failing to Learn From History

Memories are unreliable. Our recollection of investment decisions are notoriously unreliable – we tend to remember our successes vividly while conveniently forgetting our mistakes.

Without an intentional learning process, we repeat the same errors over and over again. Research shows investors who reflect on past decisions systematically outperform those who don't.

Solution: Keep an investment journal. When making a decision, document what you did, why you think it should work, and what could go wrong. Reviewing this journal annually helps identify patterns in your decision-making. Many investors discover they're good at one aspect of investing but poor at another…keep following that reductionist system and you might end up with a personal edge.

4. Ignoring Contrary Evidence

We make sense of markets through narratives. News + Stories that explain why certain investments will succeed or fail. Stories are powerful mental tools, but dangerous because they simplify reality.

Take some common and current unquestioned narratives – artificial intelligence revolutionizing every industry, weight loss drugs transforming healthcare economics, or the "end of fossil fuels". This may seem obvious, but they all face significant counterarguments that financial media NEVER highlight.

This happens because confirmation bias drives us to consume information that reinforces what we already believe while dismissing contradictory evidence. It's a psychological comfort mechanism that narrows our perspective and dramatically increases investment risk.

Solution: Follow the maniacs that rarely hit the mark or scratch your itch. Deliberately seek opposing viewpoints. Follow analysts and experts whose outlook differs from yours. When considering an investment, list three reasons it might fail – not just why it might succeed. This creates cognitive dissonance that improves decision-making.

5. Overpaying for Investment Products

The most overlooked mistake may be the most financially damaging: paying excessive fees for investment products and services.

The difference between a low-cost index fund (0.1-0.2% annual fee) and an actively managed fund (1% or higher) seems inconsequential in any given year. But these costs compound dramatically over time. A seemingly small fee difference – just 0.8% annually – can reduce a portfolio's value by 15-20% over twenty years.

Solution: Focus on what you can control. While market movements are unpredictable, costs are certain. For most investors, a portfolio of low-cost, broadly diversified index funds provides the highest probability of long-term success.

We all pay market fees during our lives. But at some point, you should graduate and let others pay the school fees (yeah, right).

Happy Sunday, stay curious.

- John

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