The Top Ten Things Bad Investors Say

by RJ

in Investing

Market timers, day-traders, and CNN watchers beware. You’re probably going to be offended if you read this article.

All others, I hope you get a good laugh or ten out of The Top Ten Things Bad Investors Say.

# 10 – “How Do I Input my 100+ Stock Transactions into TurboTax?”

Wait, how many stock transaction did you have last year? Even if you’re paying just $7 a trade, that’s a minimum of $700 worth or transaction fees. For a portfolio that contains $10,000, that’s the equivalent of paying a 7% fee and that doesn’t even include mutual fund fees or taxes.

# 9 – “Did You Catch CNN Today?”

The market goes up. The market goes down. Why is this news? This has happened everyday for around 150 years.

Day-to-day market fluctuations have nothing to do with achieving your financial goals.

# 8 – “The Market’s Rallying, It’s Time to Buy”

Yea…that makes sense. Let’s wait to the price increases, and then buy.

To quote the most successful investor of all time, Warren Buffett,  from his 1997 shareholder letter:

“If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices? These questions, of course, answer themselves.

But now for the final exam: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have raised for the “hamburgers” they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.”

# 7 – “Expenses and Taxes are Overrated”

I’m confused.

If I put in $5,000 in a Roth IRA, which is a tax protected investing, for 40 years, and that money grows at 10% per year. At the end of 40 years, I’ll have accumulated $2,434,259.

Now, assuming I put the same $5,000 for 40 years into a taxable account, and that money grows at 9% due to fees. At the end of 40 years, I’ll have accumulated $904,922 assuming a marginal tax rate of 25%.

That’s a difference of $1,529,337.

You see why I’m confused why someone would think taxes and fees are overrated?

# 6 – “I Think I’m Going to Give Day Trading a Try”

In the 1970’s, there was a professional baseball player named Mario Mendoza. Even though he managed to stay in the big leagues a long time, he hit around .200 each season. Or, for every ten times he was up to bat, he only got two hits.

Would you bet your entire life savings, on the chance of Mario Mendoza getting a hit? Of course not. Yet, year after year, that’s what people do when they go into day-trading. Less than 20% and closer to 10%, of day-traders succeed.

# 5 – “My 401(k) Sucks so I Invest in a Brokerage Account”

Just because you can’t invest in individual stocks in your 401(k), doesn’t mean it sucks. The 401(k) administrator limits your investment choices for a reason. Unfortunately, that reason is that most people are not good at picking individual stocks.

If your 401(k) really sucks, you need to ask your employer to change.

# 4 – “I Got Out of the Market at the Perfect Time”

Bad investors just don’t understand that in order to win the market timing game, you don’t have to be right once, but twice.

Those people who “timed the market” by getting out in October of 2008, are still sitting on the sidelines. They might have saved themselves a few % going down but cost themselves the chance at a 50% plus upswing.

The really funny this is that only now, after the market has almost doubled since it’s low, are they looking to get back in. That’s not timing the market, that’s called selling low and buying high.

# 3 – “I’m just Waiting for the Market to Drop before I Start”

The problem with this strategy is that what happens if the market doesn’t go down? What happens if we’re at a point, right now, when the market will never drop to where it is now? Is that possible? Certainly.

And if it is possible, that means that you may be waiting forever.

# 2 – “This One Stock I bought is Up HUGE!!!”

Great, that one stock that you bought is up big. Congrats!!!

How about the other 20 in your portfolio? Or, how about the fact that the market has risen by that much over the same period of time?

Next time your friend is telling you about how he bought this one stock at a “perfect” time, ask him about his losses. That picture is never as bright.

# 1 – “Index Funds are Average”

Investor’s as a whole, can only earn what the market returns. And, since index funds track the performance of the market, wouldn’t that make them average?

You would think so, but the problem is costs. Investors as a whole earn what the market returns minus costs. Therefore, by buying an index fund with costs below what the average investor pays, you’re actually outperforming the majority of investors. Add index fund’s tax efficiency, and all of a sudden index funds are in the top 20% over a 20 year period.


I had a lot of fun writing this. If you have a few sarcastic things to add, write it in the comments below.

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{ 6 comments… read them below or add one }

acfNo Gravatar February 16, 2011 at 3:59 pm

Good list but what about investors who don’t know how to use an apostrophe?


EricNo Gravatar February 16, 2011 at 8:03 pm

Love this! I wish I was this clever, haha. Hope people have some good ones to add.


MeganNo Gravatar February 17, 2011 at 2:13 pm

I am smart enough to know when I don’t know enough, and investing is one area where I just don’t know enough to do it myself.

I do fund my Roth IRA and my 401(k), but I let smarter, more informed people manage the investments there.

I am educating myself about investing though, both so I can keep an eye on the way my retirement accounts are managed, and so that I might, one day, know enough not to make all of the rookie mistakes listed above. Until I have learned more, I’ll let the experts do what they do best.

Thanks for the list, RJ. It puts me one step closer to knowing enough that I might do it myself. :D


Pat S.No Gravatar February 17, 2011 at 7:58 pm

My cousin/accountant/broker/friend told me about this HOT stock! I have to buy it right away or I’ll miss the move!


DennisNo Gravatar February 18, 2011 at 11:39 am

Good article, short and to the point. I feel a quick blurb on Dollar Cost Averaging in point #1 would be very useful for the average investor (maybe even as its own point).


John HunterNo Gravatar February 20, 2011 at 11:33 am

Fees are huge. They should be close to the top of every investors consideration for any investment.

Frequent trading not only adds transaction cost but also the effective tax rate (if you have gains). If you have losses it helps you tax situation but if that is the best thing you can say – that my investments losses can be writeoffs on my taxes that isn’t good (and you are capped at $3,000 is losses a year that can be written off).


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