{"id":54434,"date":"2021-11-02T13:44:00","date_gmt":"2021-11-02T17:44:00","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=54434"},"modified":"2021-11-17T10:37:54","modified_gmt":"2021-11-17T14:37:54","slug":"common-investment-mistakes","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/common-investment-mistakes\/","title":{"rendered":"The 4 Common Investment Mistakes to Avoid"},"content":{"rendered":"\n<p>What are the four common investment mistakes? Why do investors fall prey to investment pitfalls?<\/p>\n\n\n\n<p>Common investment mistakes you must avoid include adopting overly complex investment models, listening to false oracles, combining companies with flawed synergies, and buying into companies that don\u2019t expense stock options. The mistakes happen because of the competitive and profit-seeking nature of investors. The desire to get ahead and not lose out leads to avoidable and costly mistakes.<\/p>\n\n\n\n<p>Read on to discover more about the four common investment mistakes you must avoid.<\/p>\n\n\n\n<!--more-->\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Common Investment Mistakes<\/strong><\/h2>\n\n\n\n<p>Given how competitive and profit-seeking financial investment is, it\u2019s prone to developing false wisdom and red herrings. Munger cautions investors against the common investment mistakes made on Wall Street and by other investors.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Embellished Synergies<\/strong><\/h3>\n\n\n\n<p>When investors think about buying and combining businesses, they often point to financial synergies that can result\u2014often through cutting shared overhead costs or expected growth through combining business forces.&nbsp;<\/p>\n\n\n\n<p>Munger is aware that these synergies exist, but finds that many people embellish the synergies that will actually materialize.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Too-Complicated Systems<\/strong><\/h3>\n\n\n\n<p>Munger and Buffett like simple investment philosophies\u2014buy <a href=\"https:\/\/www.shortform.com\/blog\/qualities-of-a-good-business\/\">good businesses<\/a> with sustainable competitive advantages at low prices. They find mathematically and theory-heavy investment models, like <a href=\"https:\/\/www.shortform.com\/blog\/markowitzs-theory\/\">modern portfolio theory<\/a> and beta, incomprehensible. For example, Munger finds the idea that a stock\u2019s volatility is a measure of risk nonsense.<\/p>\n\n\n\n<p>Munger thinks the same about derivatives, which can have incredibly complex structures and become nearly impossible to do reliable accounting on. Derivatives books are often constructed out of thin air, fanciful thinking, and false profits. He pointed out how derivatives obfuscated the terrible situation at Enron, and in 2003, well before the 2008 financial crisis, he predicted that \u201cthere are big troubles to come.\u201d<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>False Oracles<\/strong><\/h3>\n\n\n\n<p>Munger points out that one of the common investment mistakes people make is to listen to so-called experts that can <a href=\"https:\/\/www.shortform.com\/blog\/no-one-can-predict-the-future\/\">predict the future<\/a>. This is foolhardy\u2014people are no better at <a href=\"https:\/\/www.shortform.com\/blog\/you-cant-predict-the-future\/\">predicting the future<\/a> of financial markets than they are at reading tea leaves.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Not Expensing Stock Options<\/strong><\/h3>\n\n\n\n<p>Munger and Buffett both believe issuing stock options must be accounted for as part of expenses. Avoiding this reduces expenses and inflates company earnings, which is why executives like doing it. In the short term, this can raise stock prices, but eventually the finances don\u2019t add up, and confidence in the company plummets along with the stock price. (Shortform note: <a href=\"https:\/\/hbr.org\/2003\/03\/for-the-last-time-stock-options-are-an-expense\">read this HBR article<\/a> for a more thorough discussion of why managers falsely believe options shouldn\u2019t be expensed, and why those reasons are foolish.)<\/p>\n","protected":false},"excerpt":{"rendered":"<p>What are the four common investment mistakes? Why do investors fall prey to investment pitfalls? Common investment mistakes you must avoid include adopting overly complex investment models, listening to false oracles, combining companies with flawed synergies, and buying into companies that don\u2019t expense stock options. The mistakes happen because of the competitive and profit-seeking nature of investors. The desire to get ahead and not lose out leads to avoidable and costly mistakes. Read on to discover more about the four common investment mistakes you must avoid.<\/p>\n","protected":false},"author":10,"featured_media":54437,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[45,79,31],"tags":[533],"class_list":["post-54434","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","category-entrepreneurship","category-money","tag-poor-charlies-almanack","","tg-column-two"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v24.3 (Yoast SEO v24.3) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>The 4 Common Investment Mistakes to Avoid - Shortform Books<\/title>\n<meta name=\"description\" content=\"What are common investment mistakes to be avoided? Here is why false oracles and overly complex investment models hinder investment success.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.shortform.com\/blog\/common-investment-mistakes\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The 4 Common Investment Mistakes to Avoid\" \/>\n<meta property=\"og:description\" content=\"What are common investment mistakes to be avoided? Here is why false oracles and overly complex investment models hinder investment success.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.shortform.com\/blog\/common-investment-mistakes\/\" \/>\n<meta property=\"og:site_name\" content=\"Shortform Books\" \/>\n<meta property=\"article:published_time\" content=\"2021-11-02T17:44:00+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2021-11-17T14:37:54+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/s3.amazonaws.com\/wordpress.shortform.com\/blog\/wp-content\/uploads\/2021\/11\/investment-mistake.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"948\" \/>\n\t<meta property=\"og:image:height\" content=\"720\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Joseph Adebisi\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Joseph Adebisi\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"2 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/www.shortform.com\/blog\/common-investment-mistakes\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/common-investment-mistakes\/\"},\"author\":{\"name\":\"Joseph Adebisi\",\"@id\":\"https:\/\/www.shortform.com\/blog\/#\/schema\/person\/d8daf45671a09e8745a7a9f50a03b2a0\"},\"headline\":\"The 4 Common Investment Mistakes to Avoid\",\"datePublished\":\"2021-11-02T17:44:00+00:00\",\"dateModified\":\"2021-11-17T14:37:54+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/common-investment-mistakes\/\"},\"wordCount\":431,\"commentCount\":0,\"publisher\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/#organization\"},\"image\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/common-investment-mistakes\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2021\/11\/investment-mistake.jpg\",\"keywords\":[\"Poor Charlie&#039;s Almanack\"],\"articleSection\":[\"Business\",\"Entrepreneurship\",\"Money\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\/\/www.shortform.com\/blog\/common-investment-mistakes\/#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.shortform.com\/blog\/common-investment-mistakes\/\",\"url\":\"https:\/\/www.shortform.com\/blog\/common-investment-mistakes\/\",\"name\":\"The 4 Common Investment Mistakes to Avoid - Shortform Books\",\"isPartOf\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/common-investment-mistakes\/#primaryimage\"},\"image\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/common-investment-mistakes\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2021\/11\/investment-mistake.jpg\",\"datePublished\":\"2021-11-02T17:44:00+00:00\",\"dateModified\":\"2021-11-17T14:37:54+00:00\",\"description\":\"What are common investment mistakes to be avoided? 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