The 52-Week Low Formula: A Contrarian Strategy that Lowers Risk, Beats the Market, and Overcomes Human Emotion

Chapter 4Five Common Mistakes Investors Make

Jacobian Inverse: What are some common mistakes that could help me destroy my principal with a high probability? I would rather follow my instincts than pause and contemplate a better way to think and behave.

Pausing and raising your awareness of how we instinctively and often inaccurately behave should help you better grow your principal rather than destroy your principal.

I’ve been working in finance for more than 15 years. In that time, I’ve worked with hundreds of clients, dozens of investment managers and Wall Street analysts, and while the world of investments is a constantly changing, ever-evolving one, there are certain mistakes or pitfalls that I’ve seen consistently over time. These mistakes are not limited to bad investments. In fact, bad investments tend to be the results of mistakes, not the mistakes themselves. The mistakes I’ve seen over the years happen long before a trade is executed. They are mental mistakes, psychological mistakes, and, for the most part, they are completely avoidable. There are more than five, but these are the most common ones I’ve seen and the ones most likely to lead to investor dissatisfaction, disappointment, and poor results.

Mistake 1: Trusting Your Emotions Instead of Engaging the Mind

I’m a fairly emotional guy. I understand the power of feelings, but when it comes to investments, emotions need to take a backseat to logic, rules, and discipline. The most common emotion in money management ...