7 Beginner mistakes to avoid in the stock market

4) Not setting realistic expectations – 

When I first started investing in the stock market, I was so excited. I opened up a brokerage account with the first one that popped up on Google search (ThinkorSwim for anyone who remembers). 

They charged astronomical commission fees (see step 3 above) and I immediately thought I would become the next Carl Icahn protege. 

Unfortunately it didn’t go as planned, after two months I was down ~20% across the 3 single stocks I owned. 

As I have grown and matured and learnt from experience, the key saying “slow and steady wins the race” is so apt when it comes to investing. Know that it will take time, consistent investing to grow your money. 

Key tip – don’t expect to become a millionaire overnight and set realistic goals. 

You’re betting on future performance and unfortunately you are not Elon Musk with the power to affect the stock market price. 

I keep my net worth updated here, so you can see a realistic timeframe of returns and investment growth, and also check out my post on how I saved $150k in 3 years.

5) Falling in love with a company – 

“Falling in love with your position”, this happened to me when I first started out.

I invested in a local Irish bank that I and my family grew up using, I became emotionally attached to the company, and ignored all the red flags (e.g. poor performance quarter after quarter, sudden exit of leadership).

I didn’t even consider selling the stock because I was so attached. I held on, and eventually it went down over 70%. Learn from me – always have a game plan on how and when to exit a stock. Let me know in the comments your best or worst investment.

Key tip – invest with your head not with your heart!

6) Relying your investment strategy totally on “experts” – 

I’m not sure why this is, but so called ‘Experts’ you hear on the news, tv and radio most of the time have no idea whether a stock will go up or down in the future.

They are just using their best guess. No one can predict the future.

Most of the time I’ve found these experts also hold significant amounts of shares of the stocks they are touting to buy. So maintain a skeptical bias on what you hear and read. 

Key tip, have an independent thought process and take ‘Experts’ recommendations with a pinch of salt. 

7) Last but by no means least is perhaps the most important – not diversifying your investments –

Investing all of your money in a few single stocks is the most common investing mistake I see with beginners.

Anything can happen to a single company, for example the oil industry crash or cruise line crash caused by the pandemic.

Stocks like Air Canada(AC) and Carnival(CCL) have still not recovered anywhere close to pre-pandemic levels. If you are invested in single stocks this greatly increases your risk. I’ve moved now almost exclusively into index funds. For me it is the best way to invest and the reason it is touted by leaders in the investing space (e.g. Warren Buffet, Kevin O’Leary).

Invest in broad based indexes where you can still take advantage of upside returns, on average anywhere from 7-12% per year historically. Plus you can still receive dividend payments.

I like Vanguard indexes like VTSAX, VTI or VOOV. Here are my favourite Index / ETF funds. You can instantly diversify across hundreds of stocks and for very low to zero fees. There are so many options out there.

Key tip, diversify, diversify, diversify! don’t invest in single stocks, invest in low cost index funds.