On The Swedish Investor channel on Youtube, is a very informative video “Warren Buffett: 12 mistakes most investors make”. Below is a summary.

The 12 mistakes discussed in the video:

• Timing the Market
• Getting attached to your purchase price
• Aggressive growth projections
• Using a lot of leverage
• Missing the forest for the trees
• Jumping over 7-foot bars
• Shrinking your universe of opportunities
• Staying active all the time
• Diversifying too much
• Confirmation bias
• Following the herd
• Omissions

Let me break down the 12 mistakes with more detail with my own take on this:

• Timing the Market: Trying to predict the perfect time to buy or sell investments based on short-term market movements often leads to poor decisions. It’s extremely difficult to consistently time the market accurately, and such attempts can result in missing out on long-term gains.
• Getting Attached to Your Purchase Price: Becoming emotionally attached to the price at which you bought an investment can lead to holding onto underperforming assets for too long. This can prevent you from making necessary adjustments to your portfolio. One needs to take a sober look at your investments and sell the ones with a poor future outlook no matter if you have a loss or not. There is always investments with better prospects available.
• Aggressive Growth Projections: Overestimating the potential growth of an investment can lead to unrealistic expectations and disappointment. It’s important to have a realistic understanding of an investment’s growth potential based on solid research and analysis. We saw this during the pandemic with many stock picking services where the mantra became “the price don’t matter because the stock will grow into it”. This is Growth at any Price (GAAP) and these type of investments always end badly.
• Using a Lot of Leverage: While leverage can amplify gains, it also magnifies losses. Relying heavily on borrowed money to invest can put you at significant risk, especially during market downturns. I learned this lesson the hard way on Black Monday October 19, 1987 when I was at 25% margin on my account. With the account dropping and being already heavily margined, I could not take advantage of any of the extremely low prices available starting the next day.
• Missing the Forest for the Trees: Focusing excessively on short-term fluctuations and details can make you lose sight of the overall market trends and long-term potential of your investments.
• Jumping Over 7-Foot Bars: Pursuing complex investment strategies or opportunities that you don’t fully understand can lead to costly mistakes. It’s better to stick with investments and strategies that align with your knowledge and risk tolerance.
• Shrinking Your Universe of Opportunities: Restricting your investment choices to a narrow set of options can limit your potential for diversification and growth. Being open to various asset classes and industries can help manage risk.
• Staying Active All the Time: Constantly buying and selling investments in an attempt to beat the market can lead to high transaction costs and potential tax implications. It’s important to find a balance between active and passive investing strategies.
• Diversifying Too Much: While diversification is important, spreading your investments too thin across numerous assets can lead to lower returns. It’s crucial to strike a balance between diversification and concentration.
• Confirmation Bias: Seeking out information that supports your existing beliefs about an investment and ignoring contradictory evidence can lead to poor decision-making. It’s important to remain open to different perspectives and conduct thorough research.
• Following the Herd: Making investment decisions solely based on what everyone else is doing (the “herd mentality”) can lead to buying at the peak of a market bubble and selling during a panic. It’s essential to think independently and make informed decisions. A subset of this concept is Fear of Missing Out(FOMO). FOMO is an emotional response to the fear that one might miss out on valuable opportunity or investment.
• Omissions: Neglecting to review and adjust your investment portfolio regularly can result in missed opportunities for rebalancing, tax optimization, and staying aligned with your financial goals.

Avoiding these common mistakes requires a disciplined approach to investing, thorough research, ongoing education, and a focus on long-term goals rather than short-term fluctuations.