Investing can be rewarding, but it can also feel overwhelming at first, leading many investors to fall into traps that quietly erode returns over time. Avoiding these mistakes is crucial for building wealth and reaching your financial goals. In this article, I’ll share three investing mistakes that cost more than you might realize — along with practical advice to help you steer clear of them.
Mistake #1. Buying or Selling Because Your Favourite Investor Did
In the beginning, it can be tempting to follow well-known names like Bill Ackman or Warren Buffett and just copy their trades. Why? Because these investors have a proven track record, and beginner investors may mistakenly believe they can replicate such returns by copying their favourite investor’s trades. However, their portfolio size, investment goals, and available capital differ tremendously from yours. (You and I certainly don’t have more than $300 billion to invest like Mr. Buffett!) What works for a large fund may not be right for an individual investor just starting out.
There is also an important issue of information delay—ranging from 5 to 45 days as required by the SEC—meaning by the time a trade becomes public, the position might have already changed. This delay can cause retail investors to miss optimal entry or exit points.
For example, I bought TSM in October 2022 but sold it in February 2023 after news broke that Warren Buffett was exiting his stake due to geopolitical tensions. While I still made a 45% profit, this pales compared to the nearly 300% return that could have been achieved by holding on till date. Similarly, I bought Paramount because Berkshire was buying, but unfortunately, both of us exited at a loss.
Tip: Instead of blindly copying trades of your favourite investors (or Finfluencers), use them as a starting point, do your due diligence, and if the stock fits your investment goals, make a decision based on your own analysis.
Mistake #2. Chasing Dividend Yield
There is nothing inherently wrong with buying dividend-paying stocks. However, buying a stock just because it offers a “high” dividend yield can harm your portfolio’s overall returns.
In general, stocks with very high yields often have unsustainably high payout ratios or have suffered significant price depreciation. Many beginner investors also overlook the opportunity cost of chasing yield over growth.
Philip Fisher, in his classic book Common Stocks and Uncommon Profits, notes that over five to ten years, stocks with lower yields often deliver better results because management can reinvest the retained earnings to grow the business and generate long-term value.
For example, I started buying Telus (T: TSX) in March 2023 at around C$27, attracted by its approximate 5.6% yield. However, I did not fully consider the company’s high payout ratio, increasing debt, and slow growth. I exited the position recently at an 8% loss. The stock now trades near C$22 with a yield of about 7.5%.
High-yield stocks can also be more vulnerable during market downturns as dividends may be cut or prices can drop sharply.
Tip: If a company has strong future prospects and pays a dividend, that’s a bonus — but don’t buy a stock solely for its dividend yield. Ultimately, it’s total capital appreciation that drives wealth creation, not just dividend payouts. Also, check dividend safety by analyzing payout ratios, earnings stability, and debt levels before investing.
A stock can be expensive at an all-time low, and cheap at an all-time high!
Mistake #3. Buying Stocks Just Because They Are at a 52-Week Low
In the beginning, it’s easy to confuse a company’s value with its current stock price. Value refers to the intrinsic worth of a business, while price is simply what buyers and sellers agree upon at any given moment.
Sometimes price and value align, sometimes they don’t — creating opportunities for investors. But remember: a stock can be expensive even at a 52-week low, and cheap at an all-time high.
Buying just because a stock is at its 52-week low risks falling into value traps where the price might reflect underlying problems rather than bargains. There is no guarantee a stock will recover to previous levels, and it may continue to decline.
Tip: Before buying a stock at a 52-week low, analyze its fundamentals. A stock can decline or rise for various reasons, and it is the responsibility of an investor to investigate those causes. Sometimes the issues can be temporary, sometimes they might reflect deeper problems. However, the sole reason for a stock purchase should never be its low price level.
In summary, these mistakes can cause significant damage to a portfolio but are easy to avoid once recognized. Always avoid the temptation to blindly follow famous investors, chase high dividend yields, and buy stocks solely based on 52-week lows. This can help protect your portfolio and improve your long-term results. Remember, investing success comes from patience, due diligence, and a focus on the fundamentals that drive value.
