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The 5 Most Common Mistakes Self-Directed Investors Make

July 31, 2019

Kristen Lunman

Written by Kristen Lunman

Kristen is General Manager of Hatch - a digital investment platform that gives New Zealanders access to the US share markets. Powered by Kiwi Wealth, Hatch provides easy, affordable, and reliable access into the largest, most liquid share markets in the world.

Hatch GM Kristen Lunman on important learnings shared by Hatch investors.


When it comes to learning anything new, making mistakes is part of the learning process. But mistakes in investing can be costly (and end up hurting long-term returns) if you don’t learn from them as soon as possible.

We asked seasoned Hatch investors about some of the biggest lessons they’ve learned early in their investing journeys so you can avoid them.

Though Hatch is for self-directed investors, these things to avoid are universal:

1. Following the herd

Treating investing as a quick-paced pursuit is often not a good idea - FOMO (fear of missing out) and the blatant ignoring of company fundamentals can be hugely detrimental to returns.
Buying into the latest fads and not relying on company performance has proven disastrous – dot-com bubble, we’re looking at you. Some of our more seasoned investors haven’t forgotten either. Investors who follow the herd tend to be overly-optimistic about a share’s price increase and fear being left behind while others enjoy huge gains. But irrational investing pushes share prices into overvalued price territory, and we know what happens next: pop goes the bubble.
Many Hatch investors are looking to buy shares in solid, “boring” businesses – the ones that, over time, they hope will reward them through share price appreciation or dividends.

  • Tip: Do your research and trust your analysis.

2. Not doing the research

Researching shares can be intimidating when you're new to the process.

There's a lot of financial information on the internet, and it's not always clear. However, it's not as difficult as it seems.

An excellent place to start is reading an annual report to understand the value of a company. Annual reports detail what’s going on in a company, their activities and financial performance - and are mostly available for free on their websites. 

Seasoned investors also look at how other companies in the same industry are working. Try googling and reading analyst reports to compare.

Many investors also look to consumer-friendly sites like The Balance, The Motley Fool, and Finimize for jargon-free information.

Closer to home at Kiwi Wealth, we’ve developed an Investor 101 video series, and our Hatch blog has some great information too.

  • Tip: Invest in your financial literacy.

3. Active trading

When investors buy and sell shares quickly and regularly, rather than letting investments sit tight and play the long game, they’re active trading.

Some investors rely on luck (instead of research, knowledge and smarts) and invest their money when a share is on the rise, only to pull it out when the share is plummeting. But trying to ‘time’ the market is not the best strategy. Investors who’ve been around the block know that you can’t beat the market this way.
There are a few reasons why active trading isn’t the way to get started in investing. Firstly, active trading takes a lot of time and energy. Secondly, it can increase your investment costs, such as brokerage fees. Lastly, active trading increases your chances of buying and selling at the wrong time.
The market is volatile, so there’s a reason to let your money ride the wave. Over time, the philosophy - based on past performance - is that peaks will outweigh the valleys. 

  • Tip: Develop a plan and take long-term approach.

4. Being guided by emotions

The most common mistakes Hatch Investors shared were watching results every day and panic-selling.
We weren’t all that surprised – investors are humans first.  But when it comes to investing, our emotions mean we can be our own worst enemies. Many investment losses come from a mixture of impatience and impulsiveness - two very human conditions.
Emotional factors like fear, greed, and overconfidence can wreak havoc on our portfolios. Investing might be the only time where it can pay to be lazy.

Seriously. Don’t fixate on the day-to-day movements in share prices. Let the market ride and stick to your guns.

  • Tip: Ignore short-term market fluctuations.

5. Not starting sooner

If only we had a dollar for every time investors wished they’d started earlier.
The cold, hard, fact is that it’s always better to invest sooner rather than later: time is key to letting your money grow over the long term.
Prices of shares will rise and fall daily, but over time, share markets tend to rise in value. Being concerned with short term returns can lead to poor financial decisions like trying to 'time' the market to find the perfect time to buy or sell.
But if you start making investing a habit, you can future-proof your finances. You don't have to invest thousands either. Beginning with a little bit here, and a little bit there over time, your investments will add up!

Tags: Investing, Hatch, Investment Basics

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