Suze Orman: These Are the 3 Biggest Mistakes You Can Make as an Investor
Most people know this investing advice: Buy low, sell high. And while that sounds simple, it’s actually very difficult to do. Many invest with the best intentions, hoping their money will make money without them lifting a finger. However, many end up losing money instead.
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Personal finance expert and New York Times bestselling author, Suze Orman addressed the challenges of being an investor on her podcast. In an episode called “Suze School: The Biggest Mistakes You Make as an Investor,” Orman shared some advice to help you get your investments in order.
Giving In to Fear
Investing can be scary, especially if you’re putting a lot of money into a stock.
Consider this: Maybe you do research and find an outstanding stock. You think about buying some shares, but because of the risk, you decide not to invest. A short time later, the stock takes off just as you’d predicted, and you’re left kicking yourself because you missed your chance.
Orman says the biggest investing mistake you can make is making decisions based on fear. During her time as a stockbroker, she found that her clients fit into two categories: those that invest and hold no matter what happens, and others that invest and sell at the slightest dip in price.
Investors who give in to fear suffer from what’s known as myopic loss aversion (MLA). MLA is also known as an investor’s tendency to focus more on the short-term outcomes of a stock rather than the long-term benefit. As Orman observed, MLA often leads to selling investments too soon and losing out on potential profits.
DALBAR’s Quantitative Analysis of Investor Behavior (QAIB) found that investors with $100,000 who bought and held S&P 500 throughout 2023 would earn $26,288 and have a total of $126,288 at the year’s end.
But to do this, investors must hold their investment through multiple dips. Orman found that her clients who held the stocks because they were confident in their selections made much more money on average than those who sold due to fear.
One way to avoid giving in to fear is by reframing risk. Try viewing risk as a potentially rewarding part of your journey instead of a potential loss. Recognizing and transforming your fear can help you hold your investments and gain more profits in the long run.
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Focusing on What You Had
When investing, it’s essential to focus the present. Thinking too much about what you had before instead of what you have now can skew your perspective.
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