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Have You Made These Costly Investing Mistakes?

25 August 2015 in Investing 101

Investing mistakes can be costly—yet educational, if you can learn how to avoid them in the future. With that in mind, here are some common missteps to watch out for.

Fat Fingering

Ever have a slip of the finger while ordering online, and end up having to cancel an accidental transaction? Now imagine that same mistake happening while placing a trade. Fat fingering is investment slang for erroneously pressing a button that messes up a desired trade.

A famous example of fat fingering was the near loss of over $617 billion in erroneous stock trades an institutional investor submitted to the Japan Securities Dealers Association on October 1, 2014. Fortunately, the over-the-counter market caught the mistakes in the nick of time and canceled them—something you should never expect to be able to happen if you have a slip of your own finger.1

Twitter Versus Tweeter

Finding investing opportunities before others do is one thing, but getting carried away with hastiness is another. Taking that extra second to double-check your orders can save you from costly errors—even relying on spellcheckers and automated prompts can be perilous if you’re typing up tickers.

An apparent failure to verify the ticker symbol for a popular stock resulted in an 1,800 percent increase of a penny stock on October 4, 2013.2 An extra Q typed in after the ticker for Twitter, TWTR, results in the ticker for Tweeter, TWTRQ. The rally in Tweeter was short lived, and the same became true of the company, as it later turned out.3

Refusing To Cut Your Losses

If a stock price has declined a great deal, waiting for it to rebound might turn out to be a bad decision. Sometimes you may be better off cutting your losses and moving on.

Even famous investors like Warren Buffett have made this mistake. He received a lot of criticism for not letting go of his sizable yet underperforming investment in IBM—in fact, he still holds close to $13 billion worth of shares in the company.4 IBM has suffered many setbacks and when the stock plummeted in October 2014, Buffett lost close to $1.3 billion on paper.5 Since 2011, IBM has significantly underperformed the Standard & Poor’s 500 as well.

IBM vs S&P500

Letting Fear Interfere

Memories of financial losses have a way of giving retail investors cold feet—but missing out on investment opportunities can amount to even larger losses in the form of opportunity costs.6

U.S. household net worth dropped by around $16.7 trillion from summer 2007 through the last trough in late 2008. Since then the markets have risen nearly 200 percent, yet consumers have yet to return to investing as much as they did in 2007.7

Trading mistakes can happen to anyone, even the most successful of investors.
Of course, it’s never too late to learning from your (or others) mistakes. Continuing to expand your investing knowledge and making decisions carefully can help you better avoid some of these missteps.

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1 Kitanaka, Anna, Hasegawa, Toshiro, “$617 Billion in Japan Stock Orders Scrapped After Error,” Bloomberg, October 1, 2014.
2 Terdiman, Daniel, “Oops! Thanks to Twitter, Penny Stock Tweeter Jumps 684%,” CNET, October 4, 2013.
3 Eisen, Ben, “’TWTRQ’ Stock Up As Much As 1,800% As Investors Confuse Tweeter For Twitter,” MarketWatch, October 4, 2013.
4 Gandel, Stephen, “Buffett Boosts Berkshire Hathaway’s IBM stake by $400 Million,” Fortune, May 15, 2015.
5 Wallace, Gregory, “Warren Buffett Loses $2 Billion in Two Days,” CNN Money, October 21, 2014.
6 Egan, Matt, “Worried About a Stock Market Crash? Read This,” CNN Money, February 26, 2015.
7 Novel Investor, “An Under-Invested America: Is Conservative The New Norm?”
Novel Investor, February 26, 2015.

  1. Jeff
    25 Aug at 1:03 pm

    Made them all! Especially buying the wrong stock and the wrong amount.

    The volatility in the markets is crazy right now. Hold on for the ride!

    Reply

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