The Biggest Mistake an Investor Can Make

What is the biggest mistake the average investor makes?

I promise you, if you can avoid making this mistake, you will achieve investment success.

The biggest mistake people make is allowing their fear or greed drive their buying and selling decisions, because if you follow fear, you will sell at the wrong time and if you follow greed, you will buy at the wrong time.

You’re following the noise and it’s hard to ignore, but you have to.

What am I talking about?

2008

Well let’s look at the biggest selloff in our history, which was during and after the market crash of 2008. During this three week span, the market dropped just over 30%. Everybody was losing their mind except for Christian Bale.

The news was causing extra panic. Would it ever stop? No one will ever have money again. Everybody was losing money, or so they thought.

You know who were the only people who actually lost money in that crash?

The people who sold their investments.

I always tell people this: “If your house dropped in value by 30% today, would you sell it?”

No you wouldn’t. If you had money, you’d probably go and buy another house as an investment, because you understand that it’s probably on sale.

Person (A) who panicked versus Person (B) who stayed calm

So let’s look at an example of two people with $100,000 invested in 2008.

Person (A) who panicked sold everything at $70,000 and bought a 2.0% GIC, because they are safe and they didn’t want to lose any more money. Millions of people did this with trillions of dollars.

Person (B) who stayed calm, held steady and just kept their investments.

Since the crash, the US market has increased 257%, or an average of 12.5% per year.

So, right now, person A has a whopping $82,000 and person B has $180,000

Do you also remember how much noise person B has had to avoid listening to in the last 8 years?

Avoid the Noise

Let’s take a quick look:

  1. BP oil spill
  2. Japan Tsunami
  3. Downgrade of US debt
  4. Fiscal Cliff (whatever the hell that was)
  5. Government shutdown
  6. European Debt Crisis
  7. Dow Falls 1,000 points in a day
  8. Crude oil falls 77%
  9. Brexit
  10. Trump gets elected

Things like this will continue to happen, but the market always powers through. Remember that next time you see a terrible statement and you can become a winner when you invest as long as you invest properly.

We’ll talk about how to avoid bad investing next.