Reblog: 3 Mistakes Novice Investors Make All The Time & How To Avoid Them

Investing is a difficult business and that’s why most people under-perform the market. That said, here are three common mistakes novice investors make all the time and how to avoid them.

1) They Chase Price:

People do not fully understand the way the market works. The biggest lesson novice investors should learn is that the market is counter-intuitive in nature. The second biggest lesson is that successful investors separate price from value. A common mistake novice investors make all the time is that they tend to chase price rather than make decisions based on the underlying fundamentals.

2) They Confuse Price With Value

Another common mistake people make all the time is that they confuse price with value. The market is a forward looking mechanism and people often confuse price with value. Peter Boockvar Chief Investment Officer Bleakley Advisory Group with $3.5 billion under management told me, “As a follow up to this, many investors are the most optimistic after a strong rise in stocks when future returns are more limited and valuations are rich and they are the most fearful after a large decline when valuations are attractive and future return possibilities are larger.” Of course, this leads to emotional, not rational, decisions and that is another common mistake people make all the time on Wall Street.

3) Confuse Fear & Greed

Warren Buffett once said that “it is wise to be fearful when others are greedy and greedy when others are fearful.” Since most people chase price, and confuse it with value they tend to buy near the top and sell near the bottom. That is one reason that leads most people to under-perform the market because they are doing the exact opposite of what is necessary to thrive on Wall Street.