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Alternative Investing

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Biggest Investing Mistakes in History

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1.  Don’t Invest Emotionally

Legendary investor, Warren Buffet, has been known for making the savviest investing decisions, and doling out remarkable investment insights. However, even Buffet has made mistakes. Typically calm, Buffet once made a “200-billion-dollar mistake” by diverting from his initial plan and buying stocks based on emotion. Buffet astutely noticed textile company Berkshire Hathaway’s pattern of selling off under performing mills and use the money to buy back stock.

Buffet’s plan was to buy the stock when they sold a mill and sell once they boosted stock, and even made a gentleman’s agreement with the CEO for a better price. Apparently, this plan was disrupted when the CEO upset his ego, by taking 1/8 of a point lower than the agreement. Indignant, Buffet bought out control of the company in order to fire the CEO. While outrageously successful, Buffet estimates he could have doubled his career profit if he’d chosen something with more potential than a declining textile mill.

Of course, most investors don’t make emotional mistakes based on their slighted ego. Instead, many make decisions based on insecurity, or fear. Combat this by always having a plan, sticking to it, and making a decision from a rational basis. Alternative investment strategies works precisely this way. With a series of checks and balances to safeguard you from making decisions irrationally, you’ll be hard pressed to make an investment decision with your gut instead of your head.

2. Stop Chasing Rainbows

There are plenty of get rich quick schemes when it comes to investing money. Throughout investing history, people have thrown away their money by listening to talking heads, and trying to jump aboard the next oncoming trend. It’s an exciting venture to hop on to something new, and hope for millions. Unfortunately, this rarely works. So, here are few specific ‘rainbows,’ or investments to avoid.

First off, avoid mutual funds with high expense ratios. Percentages of 2 percent, and even higher, means that the first 2,000 of your capital gains goes directly to the company. With this kind of big bite taken out at the get-go, it’s hard to get ahead. Second, unless you’re an investing wiz with in-depth experience, stay away from derivatives. Not only could you lose your entire investment, you could end up owing more than the initial amount. Thirdly, don’t invest in junk bonds and foreign bonds. With the increase in default risk, one bad decision could jeopardize a lot of money.

3. Diversify Your Portfolio

In 2014, deVere, a global investment consultancy, released research concerning millionaires’ investment mistakes. Turns out, the number one investing mistake among millionaires is the failure to diversify their investment holdings. Of course, this applies to all investors too. Without diversifying your holdings, you won’t balance your risks.

4. Learn From Investment History

As Sir John Templeton said, “The four most dangerous words in investing are: ‘this time it’s different.’” Stop making the same old mistakes, and consider alternate investment strategies.