12 Common Investing Mistakes

Focusing inordinately on a stock's price. Contrary to popular opinion, a "cheap" stock isn't a bargain. Penny stocks -- those trading for less than $5 per share -- are risky and dangerous. A $150 stock can actually be a bargain, and if your funds are limited, you can always buy just a few shares.

Investing in what you don't understand. The more familiar you are with how the companies you invest in work and how well they're performing, the fewer unpleasant surprises you're likely to encounter.

Not following through. Sending money to my brokerage account but forgetting to actually invest it. A similar error would be drafting a list of stocks you want to buy at the right price, but then not referring to it regularly, waiting for the opportunities to happen.

Buying and selling too often.  The most frequent traders trailed the least active group in performance by about 5.5% per year. You need to buy carefully, have conviction about your purchases, and aim to hang on for a while.

Ignoring the power of dividends. 97% of the total after-inflation accumulation from stocks comes from reinvesting dividends. Only 3% comes from capital gains.

Impatience. Remember that building great wealth takes time. See the error above. Have a long-term view. Don't chase short-term results.

Overconfidence. It's true that many of us are under-confident, but another big swath of investing humanity (men more often than women) is overconfident. (Behavioral economists have noted that some 90% of drivers think their driving skills are above average.) Don't think that one terrific performer in your portfolio means you're a genius. Don't assume that a short-term bonanza means you'll be a long-term winner. Always keep learning.

Relying too much on the advice of others -- especially via "hot" tips. It's great to learn and get ideas from others, but ultimately you should make your own decisions. You're the one who cares the most about your finances.

Not tracking your returns. Shrug off this duty at your own peril. You always want your investment returns to be (in the long run) beating a benchmark or market average such as the S&P 500. Otherwise, you might as well meet it by investing in an index fund.

Buying into what doesn't interest you. Seek out firms that excite you, ones with annual and quarterly reports you look forward to receiving and reviewing.

Losing sight of price or quality. Too many investors invest in terrific companies, but at lousy prices, or in lousy companies at terrific prices. If you hold out for those relatively few opportunities to invest in terrific companies at terrific prices, you'll stand a greater chance of doing well.

Not looking at the big picture. Sure, your main brokerage account may have $50,000 in it. But remember the equity you've built in your home. Perhaps that adds another $100,000 to your net worth. And don't forget your 401(k) at work, either. It's useful to combine all of these to see just how diversified you are (or aren't).