The 7 Biggest Investment Mistakes to Avoid in 2023

After a rough time in the equities sector last year, the temptation to make up for lost time could represent one of the biggest investment mistakes to avoid in 2023. Although time in the market often rates better than attempting to time the market, you must not lose focus. Doubling down on wagers based on the emotions of prior losses can be detrimental.

Indeed, now is a great time to sit back and reassess a fresh strategy on how to approach equities. Generally speaking, one of the biggest investment mistakes to avoid centers on assumptions. Whether these assumptions are based on repeatability dynamics or the existence of voodoo market prophets with secret knowledge, following faulty thinking without objective reasoning can exacerbate the pain of 2022. If the red ink from last year brought any positive, it’s that it delivered a harsh reality check. Below are the biggest investment mistakes to avoid in 2023.

No Need to Rush

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With several markets – including the blockchain variety – down significantly last year, a temptation materialized to load up the boat. That’s where the famous (and now annoying) quote from Warren Buffett comes up: to paraphrase, be fearful when others are greedy and be greedy when others are fearful.”

And this is usually when I say, well [expletive], if it were that easy, everybody would be doing it! This leads to my first entry among the biggest investment mistakes to avoid in 2023. Don’t rush into anything aggressively this year because you probably have more time than you think.

I say this because of the broader economic dynamic and the time lag of consequences. According to the Federal Reserve Bank of St. Louis, the real M2 money stock actually began skyrocketing in February 2020. That was when the coronavirus initially infiltrated our borders. However, the mainstream media didn’t really report on the pain of inflation until the velocity of M2 money stock accelerated.

With the Fed hiking interest rates, it’s possible that the consequences of this deflationary action – yes, I said deflationary – may begin to truly resonate in 2023 or maybe later. The bottom line is don’t rush.

Don’t Get Greedy

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Another problem that I have with the misinterpretation of Warren Buffett’s quote (and not necessarily the quote itself) stems from the assumptive reasoning of “hitting bottom.” Everybody always says, buy low, sell high. Well, no [expletive], Sherlock! Again, if everybody could make billions of dollars on cute aphorisms, everybody would do it.

Right now, you may come across your favorite YouTube luminary with a degree from Internet University who’s arguing that right now is the bottom. The thing is, it could be the bottom or it could not be. I don’t know. Nobody does. And this leads to my second entry for the biggest investment mistakes to avoid: don’t get greedy for its own sake.

You’ll be surprised at how many people get caught off guard by this erroneous logic. Just because you think you bought at the bottom doesn’t mean the underlying asset can’t go lower. It can. Especially with cryptocurrencies, they can decline to fractions of a fraction of a penny. Therefore, always analyze the fundamentals and not just “cheaply” priced assets.

Do Have Conviction

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Although many financial advisors often stress the importance of making emotionally agnostic decisions, here’s the reality: we’re all humans. And humans necessarily have emotions, making us unique among all life on Earth. Therefore, I would argue it’s impossible for immediacy bias to not influence (however partially) investors. So, it’s possible that all the cautionary ideas may be the equivalent of preaching to the choir.

However, taking no risks may be the biggest risk of all. I’m not just talking about the markets but life in general. This leads to my next point regarding investment mistakes to avoid in 2023: do have conviction in your well-researched and high-confidence ideas.

To be clear, researching by itself provides no guarantees. However, if you educate yourself on basic investing principles and dedicate your research time to reasonable assets, you will likely improve your odds of success. Certainly, this area is where the Warren Buffett quote comes in handy. You do want to pick up reasonable stocks on discounts. I’ll throw in another reference to an oft-cited celebrity guru, Robert Kiyosaki. He’s right when he says bear markets offer the best times for investors to accrue massive wealth. But you must pick the right ideas.

Avoid Tunnel Vision

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Back in high school, most baseball players would choose to play basketball to get in shape for their core sports season. In other words, rather than wait around for months and do nothing, the baseball team used the downtime wisely. The same principle can apply to investors as we navigate a potentially wild ride in the new year.

Further, the reverse principle leads to the fourth bullet point of investment mistakes to avoid in 2023: avoid tunnel vision. By this, I’m referring to only investing in sectors that you know or enjoy. Here, I’m going to have my inbox murdered by somewhat taking issue with another Warren Buffett quote. In a CNBC interview, the legendary investor said, “[y]ou have to learn how to value businesses and know the ones that are within your circle of competence and the ones that are outside.”

In other words, invest in what you know. And I agree. However, when the sectors you love have become dumpster fires because the economic paradigm shifted, I’m not sure it’s a great idea to pile in just for familiarity’s sake. Especially, flexibility and adaptability will likely transition to highly desirable attributes.

Steer Clear of Assuming

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Perusing the internet for financial guidance, you’ll often come across myriad publications referencing historical cycles. In other words, because a similar-looking catalyst in the present time produced astounding gains decades ago, the same (if not greater) outcome will materialize in the future. Maybe it will, maybe it won’t.

To be fair, the entire art of assessing the probabilities of asset price movements revolves largely around past data. I mean, if we can no longer use historical data to make decisions about the future, the whole industry of investment advisory might collapse. Still, this framework leads to another line item regarding investment mistakes to avoid in 2023. Don’t assume that what happened in the past will always repeat itself.

Yes, correlations can be powerful tools. I’ve used them myself in writing about certain topics. Nevertheless, it’s not a 100% foolproof system. Further, if you start to correlate recent trends with deeply historical ones, you might calculate faulty conclusions.

For instance, millennials are becoming less conservative as they age, breaking a longstanding political trend. It’s more than possible that similar breakages about financial assumptions may occur in the market. So, be careful about assuming future events based on historical data.

Eschewing Harmonization

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Words have power. And one of the most popular buzzwords today is diversity. Various initiatives encourage and empower it. While the sentiment is noble, diversity features no moral trajectory. Merely, it’s the existence of differences. When most folks talk about diversity, they really mean harmony, simultaneously leveraging different elements toward a collective good.

Think about it this way. Is a three-topping pizza better than a two-topping pizza? Well, it would depend on what those toppings are, right? If the three were bird poop, dog poop, and dead cockroaches, that’s a diverse pizza. But it sure as heck wouldn’t be a harmonious one, as in harmonious to our palates. Of course, this leads to another entry among investment mistakes to avoid.

The poor choice of words infiltrated the financial realm and to be clear, I’ve made this mistake before. But when you think about it, we shouldn’t be pushing for diversification of our portfolios. Because if we have a diverse portfolio of crummy stocks, what good is that? No, instead, we should seek harmonious portfolios – portfolios that harmonize with the realities of the market. And if that means we have fewer stocks in our portfolios, what does that matter? As long as you’re winning, that’s the important point.

Focus on Education, Not Prognostication

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If you’re like many investors these days, your inbox probably gets bombarded with offers to sign up for trading systems that can garner gargantuan gains. However, the problem with these systems centers on a harsh reality: no one has a crystal ball regarding market trajectory. If they did, they certainly wouldn’t sell such power to regular retail investors.

And this leads to my final entry for investment mistakes to avoid in 2023. If you are going to sign up for a paid newsletter or trading program, make sure the emphasis focuses on education, not prognostication. Because if someone is pitching you outrageous returns for low risk, chances are, it’s a swindle. How can I be so sure? It just comes down to basic logic. If these self-proclaimed market gurus really had a system to predict amazing gains, why didn’t they predict the current downturn? Let’s face it – anybody can pick stocks in a bull market. It’s the true genius that can profitably navigate a bear market.

Now, if the paid content is for education, such as learning valuable tools to develop your own system, that could be worth it. You’ll have to perform your due diligence. But do yourself a favor and stay away from the obvious charlatans.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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