Psychological Mistakes to Avoid

Psychological Mistakes to Avoid

Emotions can cloud your judgement and be the bane of sensible investment decisions. We explain the common mistakes and how to avoid them.
By: Harry Atkins
Harry Atkins
Harry joined us in 2019, drawing on more than a decade writing, editing and managing high-profile content for blue… read more.
Updated: Feb 24, 2021
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Beginner
4 min read

Many people venture into the world of investments, but many investors don’t get the chance to accrue the profits they hoped to land.

Why is it that many investors fail? Surprisingly, it’s not lack of industry or technical knowledge. The most common reason is that investors often let their emotions get the better of them, falling into a psychological trap. We’ll talk about these mistakes in more detail here.

I. Emotion-Based Investing

Many have lost and many will continue to lose by investing in the financial market while being overly influenced by emotions. Many investors fail by letting fear and greed get the best of them when it comes to making investment decisions.

Investors who try to copy what other investors are doing is commonly referred to as ‘following the herd’. Failure to carry out in-depth analysis has seen novice investors make catastrophic mistakes while investing. Fear of missing out (known as FOMO) has also seen some investors resort to chasing investment opportunities, which can lead to buying high and selling low.

Self-control is a must for successful investing results. A more measured, calm, and tactical approach devoid of emotions is the way to go if one is to avoid mistakes that have caused many people to lose money on their investments. 

II. Get Rich Quick Mindset

The urge for instant profits and instant success is another common mistake that continues to plunge many investors into failure. Investing is not a get rich quick scheme. Instead, it is all about taking calculated risks and respecting the process of building profits slowly.

Many investors fail because they fall for hyped investment opportunities purely designed to evoke emotions. If anyone is to succeed as an investor, then taking a more methodical investment approach is the way to go. If it sounds too good to be true, then it probably is. Successful traders study for years and gradually build wealth; they don’t follow a five-minute Instagram guide!

Successful investors maintain reasonable expectations when it comes to investing. They don’t feel pressured to make money in the market, a drive that ensures they don’t make irrational or emotional investment decisions. In contrast, most investors fail because of a lack of patience.

The only way one can survive the cycles of investing is to have realistic goals. Having realistic long-term goals ensures one never gets lured into get rich quick schemes.

III. Lack of Investment Strategy

A lack of an investment strategy is what causes most investors to make emotional decisions that often lead to failure. As the saying goes, ‘failing to plan is planning to fail.’ Entering the investment world without a tested strategy will usually lead to failure.

An investment strategy should factor in the amount of capital you’re planning to invest, the amount of risk you can accommodate, and the maximum loss you can take.

IV. Overconfidence

Overconfidence has destroyed many investors’ results. Overconfidence has made many investors believe in their ability to time the market to perfection, when that’s simply not possible without being a real-world fortune teller. Instead of being overconfident, the idea is to be open-minded. Trust your judgement, but also stay realistic: Even professionals lose regularly, and you will too.


Fact-checking & references

Our editors fact-check all content to ensure compliance with our strict editorial policy. The information in this article is supported by the following reliable sources.

Risk disclaimer

Invezz is a place where people can find reliable, unbiased information about finance, trading, and investing – but we do not offer financial advice and users should always carry out their own research. The assets covered on this website, including stocks, cryptocurrencies, and commodities can be highly volatile and new investors often lose money. Success in the financial markets is not guaranteed, and users should never invest more than they can afford to lose. You should consider your own personal circumstances and take the time to explore all your options before making any investment. Read our risk disclaimer >

Harry Atkins
Financial Writer
Harry joined us in 2019, drawing on more than a decade writing, editing and managing high-profile content for blue chip companies, Harry’s considerable experience in the… read more.

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