My dear Friends,

we all make mistakes from time to time, and the cost of making them varies. There can be emotional costs, life-threatening costs, or any other pain we might feel after we have made a big mistake.

By now, we all agree on how important it is that women claim their power when it comes to investing. But that does not make us less frightened of making a big mistake. Investing newbies are especially vulnerable and therefore shy away from investing at all.

Some of our biggest investing mistakes may cost us an arm and a leg and could derail our financial strategy and future. However, remember that not investing is probably the more costly outcome. Still, what are these biggest mistakes and is there a way to avoid them?

Seasoned investors avoid these big mistakes, you can avoid them, too and make confident investment decisions!

Biggest Mistake #1: Unclear investment objectives

Investors who don’t have clearly defined investment goals over an appropriate investment time horizon are much more likely to have “knee-jerk” reactions to short-term market events. That means they must rely on luck to achieve their goals rather than a portfolio strategy with a higher probability of success.

Biggest Mistake#2: Thinking short term

Isabelle Hau recommends you treat it like a marital relationship where you date first and make sure you like each other. You will spend a lot of time together, and there will be difficult times. One of the primary drivers of a successful portfolio strategy is the ability to accurately identify the investment time horizon, or the amount of time an investor’s assets need to be working to provide for them. For example, in the case of Venture Capital or Angel Investment, the exit is when there’s a sale of the company, and the investor gets a return on their initial investment.

Biggest Mistake#3: Ignoring the impact of inflation

Investors often focus on their portfolios’ currency value without considering their purchasing power. Over time, a portfolio’s purchasing power can diminish due to inflation. Inflation can rise dramatically, as we are experiencing right now, or it can be relatively subdued, as it has been since 2008. Assuming prices rise about 5% per year for the next 20 years, an investor who currently requires $150,000 to cover annual expenses will need approximately $ 300.000 in 20 years.

Biggest Mistake#4: Changing the long-term strategy after suffering losses

After a correction or bear market, some investors may be tempted to abandon stocks. Such emotional decisions can be harmful because they remove the focus from achieving their investing goals. In times like these, it’s especially important that investors stay focused on their long-term strategies. Prudent investors know stock markets can sometimes be bumpy and unsettling.

“Investing is much more akin to a marriage, it’s a very long-term commitment”.

Isabelle Hau, Impact Investor & Venture Capitalist, Inaugural Executive Director Stanford Learning Accelerator

Biggest Mistake#5: Investing too quickly

Diversification is important, critical even, but you don’t want to try and diversify your investments too quickly. You could put a lot of your money at risk. Plus, if you’re still learning, you might not have a well-honed detector of what’s actually a good deal. Drip your money into the market every few months, and then you wouldn’t have to worry about investing it all at once and if it is a bad date to start.

Biggest Mistake#6: Thinking too regional

Most investors know it’s smart to diversify, but they aren’t nearly as diversified as they think. A portfolio with only stocks from your home country misses out on an important factor—the rest of the global stock market. Then investors miss out when foreign stocks outperform local stocks.

Biggest Mistake#7: Investment decisions based on peer information and investing bias

Trusting peer group information or media bias doesn’t give investors a leg-up on other investors. Many investors can not process the vast amount of information available and make trading decisions based on information and biases derived from their social bubble. However, investors can put this widely known information into a larger economic context to make sustainable investment decisions and see the bigger picture.

Biggest Mistake#8: Overpaying

Notably, there has been a 10-year bull market partly because investors paid for exaggerated valuations. Basic economic theory states supply and demand for any asset traded in a free market will determine prices. Though this fundamental is easily overlooked concerning stock movements. Consider the recent bull market. Due to high liquidity and low-interest rates, demand surged as investors clamoured to purchase stocks. Stock supply remained relatively steady, and stock prices rose. But with inflation rising in 2021, central banks started raising interest rates, and stock markets plunged. Within a short period, overvalued tech stocks fell sharply. With interest rates staying high for some time to come, less liquidity in the markets, and a looming recession, stock prices will probably stay low for some to come.

Biggest Mistake#9: Trying to do this alone

For investing newbies making investment decisions alone is hard and intimidating – find a support group instead. Joining a like-minded community is one way to share knowledge and grow with other people. You learn about different perspectives and bounce ideas off each other. Other people’s experiences and backgrounds lend themselves to your diligence process.

If you are not the group type, at least get a sparring partner to evaluate investment decisions. This can be a professional- not your assigned wealth manager-a friend, your spouse/partner or anybody you trust. Someone who understands you and your needs yet has a focus on the bigger picture.

Depending on how you invest – joining a co-investor group is a brilliant way for Venture Capitalists and Angel Investors. The group is like a middle tier, with shared knowledge, responsibility, and risk.

Take Away

Avoiding the biggest mistakes takes discipline and time. The easiest to avoid, yet the hardest to stop, is falling for peer group advice. Good investment decisions are based on facts, seeing the bigger picture, and cutting out the noise. Peer group investing bias and FOMO are definitely not. Maybe this is some consolation even the savviest investors find it difficult to stay clear of all investing pitfalls.