052 Biggest Mistakes Investors Make

Hey there, real quick before we jump into the episode, listen, if your earnings treadmill hasn't set you free yet, running faster won't either. Listen, hustle without principles just going to burn you out. So here's what I want for you. I want you to join me for my money machine experience Live. It is three free trainings. Deep dive into how to escape the treadmill and build a money machine that actually works for you. All right, Grab your spot here by going to moneymachinelive.com and I'll see you in the free training. So why do people lose money on their investments, lose money in the stock market? Well, in this episode we're going to talk about the most common things, mistakes that people make when investing that causes them to lose money, to lose their wealth and sometimes even obliterate their accounts. So stay tuned. I'll see you in the episode.

This is the Absolute Entrepreneur show for entrepreneurs that want to operate at a high level and achieve financial liberation. I'm your host, Mel Abraham, and I'll be sharing with you what it takes to create success beyond wealth so you can have a richer, more fulfilling lifestyle. In this show, you'll learn how business and money intersect so you can scale your business, scale your money and scale your life while creating a deeper impact and living with complete freedom because that's what it really means to be an affluent entrepreneur.

Hey there and welcome to this episode of the Affluent Entrepreneur Show. This one we're going to talk about, why are people losing money in the stock market? Okay. But let's face it, here's the deal. As I'm filming this right now, the market is 604 points down. 604.18 down. We have watched the market over the last couple weeks, especially since the beginning of the year, be hugely volatile, where it's going up 500 points down 600 points, losing 1100 points in a week. Now, mind you, we've got, you know, geopolitical uncertainties. We've got oil prices going through the roof. We've got inflation. We've got the risk of interest rates going up. We've got a lot of things.

That doesn't mean that we stop living. We actually still have to navigate it. So what's happening and how do we make sure that we don't lose money? And so in this episode, I actually wanted to talk through some of the common things that what I would say retail investors, individual investors tend to make. It's what I have seen well over the last number of years and how you can avoid it. What should you do instead? What do you need to do instead to make that happen? Now, let me clarify this, is that retail investors, there's someone like you and I, but most of those retail investors, when I'm talking about them, they're the ones that have Robinhood apps and they're just doing things off of their phone or they're not doing the work to be a true investor. Okay? Remember I say that your ability to create wealth is more about your behaviors than it is about your money. And part of the behaviors is doing the things that high net worth, wealthy individuals, successful investors do. So let's just talk about some of the mistakes, then we'll talk about what to do instead. So you have a game plan going forward in this roller coaster ride of a market to try and keep you a little safer. All right, so here's the first thing, and I'm going to jump back and forth to my iPad just to write these down and everything. And so here's the first thing is that they get in the game. They get in the game and they have no education. Now let's just talk about how this happens. We look at things and we watch the stock market. Now for a while, if we looked at the stock market, it was doing really well and it was consistently going up, going up, going up. And, and people were sitting back and saying, shh, I can't lose. And, and so that whole mentality fueled people running into the market. Or you could be standing, talking to your neighbor and they say, I got this great stock tip, okay? And you jump in without education, knowledge, or understanding. So the first thing that happens is that we jump into a company, we make an investment, we decide that we're going to get into options. Okay? I have watched people get absolutely. Get crushed in options. Not because you can't make money with options, but. But because they're complex investment instruments, especially if you don't understand them and they take a certain level of understanding. So we can't make investments.

Well, I can't say we can't because we are. We should not make. Let me rephrase it. We should not make investments in things we don't understand. And so the first thing is that let's get some education. Now, it doesn't matter. Well, it does matter where you go, but, but whether it's me or somewhere else, I want you to get educated. I want you to know how to check the pulse. I want you to know what, what you don't know. And if you don't Know, you don't know what you don't know. We got to get you in the game to talk to people, to say, what do you look at? I'm going to do another episode on specifically what do I look at in a company before I invest? In fact, I had a conversation with a friend and someone that works with me about what do I look like look for in a company before I invest in the company. It's something called fundamental analysis. I'll talk to you about that. I'll give you some of the criteria and the things that I go through. But the first thing is that you need to be willing to educate yourself. You need to be willing to, to learn about investing. You need to be willing to know whether it's real estate, whether it's stocks, whether it's, you know, NFTs, crypto. You got to be willing to invest the time to learn. But that one of the biggest mistakes is that someone goes in thinking they know something because they watched a YouTube video. I know you're watching this YouTube video. Or they, they listen to a commentator on the media and you go, I'm just going to buy the stock. Or you could be buying, buying things just like my mom used to do. My dad, when he was alive, used to love to go to the racetrack and watch the horses run. And then my mom would go with him and she would bet on horses.

And she would look at the, the whole program and the horses and how do you think she chose the horse that she was going to bet on? She didn't look at the odds, she didn't look at the history. She didn't look at the jockey, she didn't look at anything. She looked at the name and what the horse looked like, and if she liked the name and, or what the horse looked like, she would put money on it. Okay? Sometimes she won. Most of the time she lost. Okay? Now, she wasn't doing it to make a ton of money. It was fun for her and everything else. But when we're talking about your financial future.

We want to be a little more scientific than that. We want to be a little more strategic than that. So the first reason that I think people lose money in investments in the stock market is they're not willing to take the time to educate themselves on the things that actually matter. Number two is they come into the game and they actually have no plan or strategy.

And here's why this is important. The idea of investing in anything, whether it's real estate, stocks, bonds, anything, is to create wealth, to build Wealth. That means that the investment itself is a single microcosm, micro spec, if you will, of your overall wealth plan.

But making that investment, we need to understand, does it fit the overall plan? Because if it doesn't fit the overall plan, why are we making the investment? See, there's something that we talk about and we teach in the Affluence blueprint, and I work with, with my clients on is, is understanding risk tolerance, risk capacity, asset allocation, asset diversification. And we want to fit the investments to hit your risk profile, your asset asset allocation and diversification profile. So it's, it's fulfilling the journey. I mean, if you think about this, your wealth has a glide path. It has a plan and a trajectory that you want it to go. There may be a good investment out there, but it may not be a good investment for you. It may not be a good investment for where you're trying to go. So sometimes we got to leave that off. If we were trying to travel from the west coast to the east coast.

We'Re probably not going to go north and south for any length of time and expect to get to the east.

And so it's important for us to make sure that the investment that we're getting into is part of an overall plan or strategy. But yet we'll pick an investment.

For the sake of the investment, but not ask, does it fit where I'm trying to go? Does it fit my journey path, that my glide path? Does it fit the strategy and help move the strategy forward? This is why in the Affluence Blueprint week, the very first thing we do is we build out the Affluence vision. I want you to know specifically what your lifestyle is going to look like, what it is we're going towards, because everything that we run into is to move you towards that affluence vision. And anything that doesn't move us towards that affluence vision, that financial independence and all of those things we shouldn't be doing and we just don't. And we use that as the metric or the mechanism for us to turn down investments or not. But too often people don't have a plan. They just know, I got to keep saving, I got to keep investing. I'm just going to invest. And hopefully by the time that I get to, whenever I want to retire, I have enough.

Coincidence.

Hope are horrible strategies. Okay? I don't have to tell you that. I think you know that. So let's be more strategic with that. Now let's dig down into some other things that that go on. The third mistake that I think some people make is that they make emotional investments.

And here's what I mean by this. This idea of emotional investing.

They get caught up in fomo, they get caught up in trends, they get caught up in the hype. Think about an emotional investing can go along with meme stocks. Think about what happened with GameStop and AMC AM and all that is that they hear. You hear the chatter. They say that they're making money. Or you're talking to a neighbor, and the neighbor says, I just made $20 a share on my. On my stock, on my. Whatever it was, whether it's, I don't know, Facebook, I'll pick on Facebook again. All right?

And so you sit there and go, oh, my God. And then the next week, you talk to them, and they go, I made another $10 on it. And you go, oh, my God. Now you're seeing this pattern. And you go, I got to get in. I got to get in. So without looking at the company, without analysis, without understanding why, without seeing if that fits your plan or your strategy, you jump in because you don't want to miss out. And you make an emotional buy. And you sit back and you go, I'm getting in. And then you have no idea. And you get why you get slammed at the end because all of a sudden the stock turns around. Like you look at Facebook. They announced earnings. They missed earnings. The stock Dr. Dropped over a hundred points and has dropped another 50 points since then. It lost. It lost almost 50% of its value. People got hammered.

In that stock. And so the tendency is to, you know, we can get into these emotional buys. Now I'm going to tell you something. That's part of how I got caught in the Ponzi scheme. They stirred my emotions. They connected to my aspirations and the desire to go, I really want to make that 20%.

And so it sounded so good. And I pictured myself retiring. I pictured myself just flying around doing nothing and collecting these checks. I pictured myself doing all those things. And it's easy to do that.

You think you're reaching the promised land until you find out it's all false, or it was a bad choice or it was a wrong decision.

So when our emotions go up, our financial intellect goes down.

We tend to make bad financial decisions when they come from a place of emotions. And like it or not, that's what happens, because the emotions start to drive.

The decisions versus the logic. And when we talk about financial decisions, they're logical, analyzed decisions to look at. Does it make sense and can I make. Make it make sense and make it make money and, and all those things. And so it becomes really important for us to make sure that the emotions are detached. Now this especially comes into play with home buying, especially in today's world where the home prices are going crazy and people are buying homes with.

Sight unseen. They're waving inspections, they're waiving appraisals. They're going in saying, I just got to get them, got to get the home. Those are emotional buys. There are going to be people that absolutely get hurt in that. In that space because they're going to buy a home and find out that there's foundation cracks because they didn't get an inspection, they waived the inspection, and they're stuck with a home that they got to rebuild that foundation or restructure that foundation. Are they going to find those. Those things? And so I get it. You want to buy a home and you don't want to lose the home. So we might make those decisions. I with my clients and when I'm advising them, when they come to me for these things, we got to strip the emotions out. I don't want anyone to get into a buy based on emotions only. And if you lose the deal because you asked for something that is reasonable, like a home inspection and an appraisal, then you lose the deal. I'd rather you lose the deal than get into a bad deal. That becomes a money pit. And there's going to be a whole lot of people that have bought money pits. They've overpaid, they went into it. And the reason they did it is because the emotions of the market took them away. All right, so that's emotional, emotional buying. And so that's the third mistake. Number four. Number four goes along with some of this, is that we make decisions based on memes.

Or social media. Listen, there is no shortage of opinions on social media, okay? But we need to consider the source of those opinions. There are people out there that are giving advice, financial advice, okay? And they have no background in it. Okay? I happen to be a licensed cpa. I happen to be a certified valuation person. I have been an advisor. I sit on boards of directors. I have a background in doing this, but I still have some limitations. And I'm first one to say I don't do that. But there are. I see people that.

Have no background in it. They've never done it for themselves yet. They want to give financial advice. Social media for some reason gives us access to these folks on TikTok on different social media channels and for some reason we tend to process it and say, oh, they're authoritative. Nope, they're not. They have a platform and that's it. I'd love for you to ask yourself and ask them.

Have they done specifically what they're saying telling you to do. There is nothing that I talk about that I haven't done myself. There's nothing that I talk about that I haven't tested. In fact, if you notice, I haven't spent a lot of time talking about cryptocurrencies or Bitcoin or any of that stuff. And the reason is because I am in the middle of testing a couple of strategies and when I go through that, I'll then unpack it for you. But I'm not going to give you something just because it's the vogue thing to do right now. And yet there's so many people out there on social media that are, are giving opinions about what you should do in the market, what you should do with the uncertainty, what you should buy. I see people posting stock symbols. Okay, man, don't, don't fall for it. I don't care who they are. Look at their background. Look if they've been educated, they have specialized training in giving you this. Look if they've done it for themselves, look what their success results are. See if they're living where you want to live in the sense of. If they're talking about how to build a million bucks to build a million dollar portfolio and they don't have a million bucks or more, they're not the person to listen to, they're not the person to learn from. So it becomes important for us to beware of the sources we're getting our information from. Because social media has given people access to other people that maybe they, they wouldn't have other. It also gives rise to scams, okay, Quite frankly. So we need to be, be careful about that. The next mistake that I see happening is this, is that mistake number five is that they have no idea how to analyze.

How do they. How do you look at a company? How do you take a look at a company and decide whether it's a good company to buy, a good ETF to buy, a good index fund to buy. We give the rules out with our students and our members of the affluence blueprint so they understand criteria and they at least have a framework to work from to make that happen. But too often we don't even know what we're looking at. They don't know what sales are they haven't looked at trends, they aren't looking at the financials. Like I said, I'll do another episode on that. That leads me to mistake number six is that they really don't understand.

The timing or timeline of the investment.

Here's, here's what I mean by this.

Before you ever get into an investment, before you ever get into an investment, you want to know what your exit is. In other words, I want to know what's going to trigger me to get out of the investment in case it goes against me. I want to, I want to know what my solution is. I want to know what my trigger is to get out of the investment if it goes for me. Because if we haven't defined the criteria to get out and get in, that's when we get hurt because we stay in. Because all of a sudden an investment doesn't go the way we want, we go, okay, well, I'll just hold it, it'll come back. Okay, famous last words. Let me tell you something. Facebook is down 150 points. It might come back, but you'll be sitting there for a while. You'll be sitting there for maybe a year, two years. They have to reprove their business model. They have to reprove that they have the user base, that the user base is growing and not shrinking, that the advertising platform is going to work. They have to reprove that. And until that happens, that price isn't coming back. Now you might want to sit on it because you sit back and say, I don't lose any money until I sell it. But is that really a good strategy? But if you understood, I'm going into this, into an investment and I know that if it comes down, you know, x percent, if it comes down to this line on the graph, I'm out. So you define it going in because that does a couple things. It removes the emotions of, oh crap, I'm losing money. And you hold on tight for dear life instead of saying, I made the decision beforehand. I knew that if it went against me, I'm going to get out. So it's important that you, prior to getting into an investment, you know your exit and what the trigger for that exit is. Now one more mistake that I see made and that is this blind trust. Some of you out there say, well, Mel, hang, thank God I got myself an advisor and my advisor tells me what to do. Great.

Here's my thought for you. An advisor is the co pilot. An advisor is the navigator. The advisor is an implementer. The advisor is an educator.

The Advisor is not the captain.

You are.

That means that you never follow an advisor's advice blindly, without questioning, without education, without understanding. I'm always pushing back on my team and saying, explain why justify this? And from an advisor's perspective, the other thing I want to know is, where are their biases coming from? In other words, how are they making money? Because that might tell you a lot about the investment they're putting in front of you. Are they putting some insurance policy in front of you that they're going to make this huge commission? Are they putting something in front of you that is absolutely the best thing for you right now under your circumstances?

So it's why there's some very specific advisors that I tell people to work with and how to work with them to make that happen. And so following blindly becomes a problem. Now, it's not just with advisors. It's with family and friends, too. Oh, so and so said this. How did I get caught in the Ponzi scheme? Here's what happened. I had a dear, dear friend for many years, and he was also a client when I had the accounting firm. So I was doing some tax work for him, and he happened to be in the Ponzi scheme, but he didn't know it was a Ponzi scheme. And he comes to me and he says, oh, my God, this has been great. I'm getting the checks and this and that, and it's going well. He says, you got to try this. And, you know, I said, no, no, okay. We saw each other another month later. He says, oh, my God, you got it. So I said, okay. I blindly trusted his input and went into the investment and ignored. Because then when I got into meeting this person, they triggered my emotions of desire and aspiration and what I wanted and the vision and all that stuff. And I got in the investment without understanding it completely, without doing the things that I think we need to do, and I ended up in a Ponzi scheme. Wiped out one third of everything I own. Okay, so blind trust, okay? You're not going to offend an advisor or someone when you question them, when you push back on them. And if you offend them, they're not the right advisor. Get out. All right, so what do you need to do instead? Here's. Let's. Let's talk about the things that I think you need to have in place instead. First and foremost, always, although we're talking about money, first and foremost is to understand the why before the how. Why do you want the wealth? What does that look like? What, how much wealth? What is that? And this is why we create the affluence vision. We want to know what that affluence life looks like so then we can put a price tag to it and a plan to achieve, achieve it. Otherwise, we're running a race and we never know where the finish line is. Why do we want to run this race with that? Why we now have the ability to look at and say, great, I can define the destination more appropriately, more specifically and deal with that. And number three, this one's something that we all have to deal with and that is this. Many of us, and probably most of us have money stories, money demons that are living inside our head that are saying things like, oh, you made a bad investment before, you're not good at this, you shouldn't do this. Or thinking about something like, like, money is evil, money is dirty. All those things affect your ability to make the right decisions for investing. And so we need to alleviate that. We need to deal with the money stories. Now I've got a couple of episodes that, that will help. Go to episode number six. We'll hook this up in the show notes. Episode number six on overcoming your money stories. Episode number 13 on expanding the money mind, and episode 21 on shifting your relationship with money. All three of those can help you with starting to tackle those, those money demons. And then the last thing I think when you start is really getting accountability, taking responsibility for your financial future, taking responsibility for your investing decisions, to be accountable to someone. In other words, don't do it in isolation, don't do it in a silo. You don't have to make this decision. Make sure that you're in a group of people that are looking at investments that understand this. And again, this is the reason that I do regular coaching calls with my people in the affluence blueprint is so we have a place to have conversations that are safe, saying they're at a level with principles and rules that matter and make a difference. So create accountability, create responsibility, create community where you can go and have a conversation, say, I'm thinking of investing this. Anything I'm missing.

Anything I should think about, or I'm in this investment, it doesn't seem like it's going right. What do you think? What would you do? And these are not your neighbor watering the lawn next door. These are people that are at the level or at a level where they have an understanding, a knowing and knowledge of how to look at investments. They've done something. So you're getting good Information.

And it's always coming from your best interest at heart.

Those are the things that I would look at. These are the things that I think are where most investors go wrong at the outset. And when we can get beyond those, now we can talk about more tactical strategy, type of things from a wealth wealth perspective. We can build the plan out because we got to have a plan and a strategy with a destination in mind. Then we can fill the plan to make it happen. We can get in and create the tactics to make that a reality. I hope this helps. I hope that you find this valuable and it keeps you out of hot water. If you are in this space and you're having, having a challenge or you have questions or this is, this has triggered something for you, do me a favor, send me a dm, send me a note, send me something. Let's, let's chat about it. Let me help you out. Let's make sure that you're doing the right thing, that you don't fall victim to some of these mistakes that I see are happening often. All right? And in the meantime, as we go, go further, make sure that you get a chance to check out some of the other videos that I just, I just let you know about to deal with the money mind. The other thing is that if you're trying to figure out I got money and I don't know where to, where to put it, or I'm trying to build a financial foundation, then I want you to check out episode 24, which is what do you do with your cash? You know, tells you the priority of what you do with your cash. But then also I have a money plan workshop that you can get access to that will help you build that unshakable foundation just for you. All right? So I look forward to seeing you in another episode. And in the meantime, always, always strive to live a life that I lose you. Cheers.

Thank you for listening to the Affluent Entrepreneur show with me, your host, Mel Abraham. If you want to achieve financial liberation to create an affluent lifestyle, join me in the Affluent Entrepreneur Facebook group now by going to melabraham.com group and I'll see you there.

And that's it for this episode of Building youg Money Machine, where we help you learn how to master your money, eliminate financial stress, and live a life of choice. If you found this valuable or helpful to you, here's what I'd love for you to do. If you do me a favor, go to Apple, Apple Podcast, or wherever you're listening to this podcast and rate and review the show. It helps us tremendously to keep us at the top of the list so we can continue to get this information and this message out to people. Because I truly believe that financial freedom is your birthright, and I want to help each and every one of you claim it. Thanks so much.