Pros vs. Joes: 17 common mistakes retail investors make

In this Master the Green you'll learn:

💰 17 common mistakes made by retail investors

💰 Why it’s easier to avoid stupidity than consistently be smart

AND

⛳ The difference between amateur and pro mistakes

One part golf, all parts money

Let's tee this one up🏌️

Dustin Johnson's costly error at the 2010 PGA Championship

The 2010 PGA Championships was a fateful one for Dustin Johnson. 

In 2010, Johnson had three PGA Tour victories to his name but was still in search of his first major win. 

Things were looking promising for the 26-year-old pro at that year’s PGA.  During the final round Johnson had surged to the top of the leaderboard with birdies on 16 and 17 to give himself a one stroke edge over fellow competitors Martin Kaymer and Bubba Watson. 

All he needed was a par or better on the final hole and he would be hoisting a trophy for his first major win. 

That’s when the wheels started to fall off.

Johnson’s tee shot sailed 75 feet wide of the fairway into the gallery at Whistling Straits.  He eventually found his ball amongst the trampled grass and discarded water bottles where the gallery once stood. 

What Johnson had failed to notice was the sand beneath the trampled fescue that signified he was in a hazard area.

Not realizing that he was in a bunker, Johnson approached his shot just like any other, and that was a problem. 

In the Rules of Golf, rule 12-b states that, “While in a bunker, touching sand in making the backswing for a stroke will result in a two-stroke penalty.”

While addressing his shot from the hazard, Johnson had “grounded” his club, or allowed it to touch the ground, thus earning him the aforementioned two-stroke penalty.  Johnson was informed of his penalty after holing out his putt on the 18th green.

The penalty would ruin his chances at his first major. 

Amateur mistakes

Professional golfers play a different game than amateurs. Pros are playing to gain strokes.  Amateurs play to avoid losing them. 

This is why Johnson’s mistake that weekend was what I’d call an amateurish one. 

The rules regarding hazards on the course were posted all around the locker room:

 “All areas of the course that were designed and built as bunkers will be played as bunkers (hazards) whether or not they have been raked.  This will mean that many bunkers positioned outside of the ropes…will likely include numerous footprints, heel prints and tire tracks during the play of the Championship.”

It was a simple oversight.  Something every pro (and their caddies) should have been aware of that weekend. 

Examples of other amateur mistakes on the golf course: 

1. Poor Course Management

Many amateur golfers struggle with course management, which involves making strategic decisions about shot selection and understanding their own tendencies. This can lead to unnecessary strokes lost by attempting risky shots instead of playing conservatively.

2. Lack of Short Game Practice

A significant oversight is not dedicating enough time to practice the short game. The short game, which includes chipping and putting, is crucial for lowering scores, yet many amateurs focus primarily on their long game.

3. Misalignment

Improper alignment at address can cause a cascade of swing issues. Many golfers do not realize how critical it is to align their body correctly with the target, which can lead to inconsistent shots and increased strokes.

4. Inadequate Understanding of Club Distances

Amateurs often lack a clear understanding of how far they can hit each club, particularly in terms of carry distance versus total distance. This misunderstanding can result in poor club selection and missed greens.

5. Ignoring the Mental Game

Golf is as much a mental sport as it is physical. Amateurs often neglect the psychological aspects of the game, such as maintaining focus and managing stress during play, which can lead to poor performance under pressure.

As you can see, amateur mistakes come in all varieties – physical, mental, and even emotional. 

The same goes for investing. 

17 Common Pitfalls Retail Investors Fall Victim To

Investing is another domain where amateurs attempt to mimic the pros to their own detriment. 

However, it’s also a place where one can do quite well by simply avoiding mistakes for long periods of time.  Even professionals know this -

It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.

- Charlie Munger

With that in mind, here are some of the most common mistakes amateur investors can make that will lead to disappointing results -

1. Expecting Too Much or Using Others’ Expectations for Returns

Setting unrealistic expectations or relying on others’ projections often leads to disappointment.  Before buying an ETF, individual stock, or other investment, do some research on historical returns to set your own expectations. 

2. Not Having Clear Investment Goals

Without a clear purpose for your investments, it's easy to drift without direction.  Having a goal or a “why” behind your investment is probably one of the most foundational ways to avoid other mistakes down the road. 

3. Failing to Diversify Enough

Putting all your eggs in one basket exposes you to unnecessary risk.  It’s true that a concentrated portfolio can produce asymmetrical risk, but it also creates a greater likelihood of going bust as well. 

It’s important to understand your capacity and your need for risk before pushing all your chips into the middle of the table. 

4. Focusing on Short-Term Performance

Chasing immediate returns often undermines long-term success.  Identifying your time horizon for an investment early on can help anchor your thinking to a longer timeframe and help you work through any short-term volatility. 

5. Basing Decisions on Emotions Like Fear or Greed

Emotional investing leads to poor timing and costly mistakes.  Whenever you’re thinking emotionally, it’s always a good idea to put some space between yourself and the decision. 

6. Over-Trading

Frequent buying and selling eats into returns through commissions and poor timing.  Even if commissions aren’t a factor, frequent trading in and out of positions rarely produces a winning result. 

See: Barber and Odean (2000) titled "Trading Is Hazardous to Your Wealth"

7. Paying Excessive Fees and Commissions

High costs erode profits over time.

8. Over-Focusing on Taxes

I’m a huge proponent of tax planning, but an overemphasis on taxes can lead to suboptimal investment choices.  Your strategy should be to pay taxes at the lowest rates over your lifetime, not avoid them all together.   

9. Ignoring Regular Portfolio Reviews

You should treat your investments just like your health.  Neglecting periodic checkups can cause your portfolio to veer off course.

10. Mishandling Risk

Risk is one of the most misunderstood elements of investing.  Every investment carries some degree of risk.  Either too much or too little risk can sabotage your financial goals.

11. Neglecting to Track True Performance

Without measuring results against benchmarks, you can’t gauge progress.

12. Reacting to Media Hype

This is another common emotional mistake amateur investors make.  News headlines can cloud judgment and lead to impulsive moves.  Be fearful when others are greedy. 

13. Chasing Yield

High returns often come with high risks that may not align with your strategy.

14. Attempting to Time the Market

Even experts struggle with market timing.  It’s nearly impossible to predict when the market will have its best and worst days.  Your best strategy is to be prepared for both.  Consistency wins.

15. Skipping Due Diligence

Another common mistake of retail investors.  Failing to research investments thoroughly invites unnecessary risk and can create costly errors if you have to exit a position prematurely. 

16. Procrastinating or Stopping Investments

Hesitation or taking breaks from investing disrupts compounding growth.

17. Not Controlling What You Can

Trying to predict the uncontrollable instead of focusing on controllable factors, like savings rate and diversification, limits progress.

Investing like a pro

The stock market is one of those rare places where amateurs can operate right alongside professionals.

Imagine teeing it up next to Tiger or trying to return a serve from Roger Federer.  While it might be exciting, the outcome won’t be pretty.   

This is why avoiding mistakes is more valuable than trying to nail every trade.  Professionals have access to tools, technology, and research that aren’t available to everyone.  They can play to score, and if they do make a few bad trades, they often have the capital to recover quickly. 

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