3 Investing Mistakes You Don’t Want to Make

Investing gurus like Warren Buffett have long mastered the most common investing mistakes, like selling a stock too early or falling in love with a stock,

| More on:
You Should Know This

Image source: Getty Images

Investing mistakes happen to all of us. But avoiding them is easier than you think. We just need to know what they are. And we need to have a plan.

The most common investing mistakes are usually grounded in emotion. For example, feelings of fear and feelings of greed. These are strong emotions that can wreak havoc on our portfolios. But only if we let them.

Here are three common investing mistakes to avoid.

Selling a stock too early

Warren Buffett is a famous proponent of long-term investing. When we find a good company, we must give it time. Time to fulfill its vision. And time to ride through different market cycles. Because in investing, time is our friend.

But how many of us have sold a winning stock too early? I’m guilty of this, as I’m sure many of my readers are. It’s okay though, as long as we learn from our mistakes. I have a list of stocks that I sold way too early. It was a mixture of fear and uncertainty that drove my decisions. What came next was me watching these stocks move higher and higher. And higher. But I hope I learned from these bad decisions. I think I have.

When I bought Ballard Power Systems Inc. (TSX:BLDP)(NASDAQ:BLDP) stock a few years ago, I was prepared. Prepared to stick with it for the long-term. Ballard Power was embarking on an ambitious quest to transform the motor vehicle industry. Today, Ballard Power’s fuel cells are the clean energy solution of choice for many applications.

For example, governments are increasingly choosing fuel cells to power their buses. Also, fuel cell trucks are popping up in many places. The value proposition is clear —  longer ranges, quicker recharging times, and excellent reliability.

Holding on to a stock for too long

The flip side to this is holding a stock for too long. We buy a stock with a certain investment thesis in mind. Sometimes, this thesis doesn’t work out. We need to be able to recognize this. We have to be able to admit the mistake. Don’t be afraid to cut your losses.

I made this mistake with some of the smaller oil and gas stocks that I bought many years ago. For example, Peyto Exploration and Development Corp. (TSX:PEY) has been decimated. But I bought it at a time when I thought it was already too cheap. I believed in the natural gas story and in Peyto. It’s a high quality, low cost natural gas producer. I thought I was buying at cyclical lows. But I misjudged the power of this low.

So it’s been a few years that I’ve been holding onto this losing stock. I could have been invested in one of the many other stocks that were skyrocketing. Needless to say, I held on too long. The question to ask ourselves in this situation is simple. “If I didn’t own the stock, would I buy it here”? This helps to reframe the decision.

In this case, my answer is yes! Maybe I’m still holding on to this losing stock for too long. Or maybe, the bullish natural gas thesis is finally about to play out. Only time will tell.

Falling in love with a stock

The final common mistake is falling in love with a stock. Warren Buffett also keeps love out of it. Because this is another grave mistake. And it’s more common than we realize. I must admit that I fell in love with Indigo Books and Music Inc. (TSX:IDG) stock. It has all the ingredients for me to do so. This may have blinded me to the reality of this retailer’s situation.

The bottom line

The common investing mistakes are common for a reason. Because these mistakes are a reflection of our emotions. But they’re also a reflection of our uncertainty. Nobody knows the future. And we can usually only clearly see our mistakes in hindsight. But I firmly believe that we must be aware of these common pitfalls. Awareness gives us the edge to do better.

I think Warren Buffett has surely achieved his greatness by having this awareness.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Karen Thomas owns shares of BALLARD POWER, INDIGO BOOKS & MUSIC INC., and PEYTO EXPLORATION AND DVLPMNT CORP.

More on Energy Stocks

Money growing in soil , Business success concept.
Energy Stocks

TSX Domination: The 4.1% Dividend Stock Canadian Investors Should Watch

Canadian investors should seriously consider owning a top-tier energy stock and earn in two ways.

Read more »

Dam of hydroelectric power plant in Canadian Rockies
Energy Stocks

A Dividend Giant I’d Buy Over Enbridge Stock Right Now

Enbridge stock (TSX:ENB) has long been one of the best dividend payers out there. But, perhaps it might be time…

Read more »

sad concerned deep in thought
Energy Stocks

CES Energy Stock Is Rising, But I’m Worried About 1 Thing

Despite a potential short-term challenge, CES Energy’s (TSX:CEU) long-term growth outlook remains strong, which could make it an attractive buy…

Read more »

sale discount best price
Energy Stocks

I Just Bought More of These 2 Bargain Stocks

Investing in cheap TSX stocks such as Ensign Energy Services can help you beat the broader markets over time.

Read more »

oil and gas pipeline
Energy Stocks

Where Will Enbridge Stock Be in 5 Years?

Here’s why I expect Enbridge stock to outperform the broader market by a wide margin in the next five years.

Read more »

todder holds a gold bar
Energy Stocks

Canada’s Top Performers: 2 Soaring Stocks That Are Still Buys

Sure, buying light isn't ideal. But when the stock continues to climb, it's far worse to leave it by the…

Read more »

thinking
Energy Stocks

How Long Will Enbridge Underperform the TSX Composite?

Enbridge Inc (TSX:ENB) has been underperforming the TSX for at least five years. Will it bounce back?

Read more »

A plant grows from coins.
Energy Stocks

1 Growth Stock Down 18% to Buy Right Now

This energy stock could be the top growth stock for investors looking for a quick and stable increase in share…

Read more »