Investors Mistake - What's the biggest mistake that stock market investors make?


I believe most of our mistake would not happen if our teachers taught us about finance and accounting in schools and colleges. The other reason because of which we as investors make a mistake is because we focus on price-based buying rather than value-based buying.

Benjamin Graham, Philip Fisher, and Warren Buffett indicated value base buying as a good way to invest in good companies at the right time.

Benjamin graham explained Sir Isaac Newton example of falling in the trap of noise and bluff.

This is an incident of 1720.

Sir Isaac Newton owned shares in the South Sea Company, the hottest stock in England. Sensing that the market was getting out of hand, the great physicist muttered that he could ‘calculate the motions of the heavenly bodies, but not the madness of the people.’

Newton dumped his South Sea shares, pocketing a 100% profit totalling £7,000.

But just months later, swept up in the wild enthusiasm of the market, Newton jumped back in at a much higher price — and lost £20,000 (or more than $3 million in (2002-2003’s) money.

For the rest of his life, he forbade anyone to speak the words ‘South Sea’ in his presence. Sir Newton, father of physics, it’s hard to believe such an intelligent scholar falling in a trap.


This happens when you make a price as your base for investing.

What if we had to pay $100 to see the market price quoting of any stock? How frequently would you like to see it?

I would rather prefer seeing companies’ financials and news update instead of going for that 100 bucks. If I notice something wrong with the financial reports or news or a change in management, I prefer selling it.

This way I stay invested for long and avoid feeding government huge taxes and the brokerage to brokering houses.

Don’t you see? they want us to trade frequently at high speed to generate commission for them.

When you buy any securities and hold them for a long, notice that your broker will call and suggest you buy more or sell it. That is what they get trained to do, influencing our decision. They tell us the target or how much loss we would suffer if we ignore them.

Once my broker called me and suggested that I sell my underlying investment because it was set for downtrend according to some technical chart.

The stock fell from that level for some days and I did exactly the opposite of what he said. I purchased more because many people were selling it due to some chart based price correction, and it thereafter recovered. I did not make much profit, but it saved me from over-trading and expensing on brokerage.


Investors make mistakes. I made mistakes over time, but when I shifted to long-term buying, the biggest mistake we make as investors made sense to me.

I have listed some common mistakes we make as investors:

Price-based Buying

Price is not the right indicator for investment. It has become easy for us to invest from one stock to another, buy and sell in fractions of a second.

We are ignoring the core principle of investing. Purchasing stock does not differ from buying a business.

We often analyse any business and then hold it forever or till business works profitably.

Over-trading or Speculating

Price-based buying leads to speculation. Because speculation is an addiction; you cannot stop unless you have lost it all.

Speculation cannot make you money; maybe you have earned profit today, but you will lose it tomorrow, all of it.

Besides, it will cost you brokerage fees, taxes and an income tax notice if you have not reported your sources of income and audited your accounts because of high turnover.

Valuation based on the prediction                                                                                  

I would suggest you read the book, “The Warren Buffett Way,” which shows 12 tenets of Buffett investment and it is so basic even a layman can understand. Or else stay in touch with research for invest. We will have dozens of blog on how to analyse any company based those 12 tenets of Warren Buffett and financial statement.                                     

No Patience

 Many people do not understand the right time to enter and exit the market. I often face this issue and believe me, no one knows the right time. But if you buy any stock below its intrinsic value and companies which generate more returns on capital employed, then you can stay invested forever till the company is doing well.

Averaging on loser

Often we feel so confident on the stock because of its popularity and buzz all over. We put all our money in averaging. We average hoping to double the profit but we ignore the basic principle of investing. What is the company doing and how is it performing? A recent example is the Kwality share. They promised buyback and dividend. The news came out about Kwality buying the cereal market, but that was a bluff. Only who analysed the financial statement understood that it was under performing its current product and debt has risen. If a company cannot operate its current product, how will it perform better with others? It sold the business to HUL and now facing bankruptcy.

Cannot keep it simple.                                  

Simple does not mean easy. Simple is what we all ignore intentionally because of experience and overconfidence. You do not need a high IQ or finance background to understand the investment. Newton’s south sea is the best example for that matter. You need discipline and basic principles to apply to analyse any company. Your analysis may be better than mine about returns on invest but basic does not change. Our investment will be in search of good companies.

But there may be dozens of mistakes we do when it comes to investment, but we learn from them.

Never underestimate the power of an investment.

Please let me know if I have missed any point on common mistakes that investors should avoid. 

Because, I believe the major part of most common mistakes that every investor should avoid. 


1 thought on “INVESTORS Mistakes -What’s the biggest mistake that stock market investors make?”

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