5 Big Investing Mistakes to Avoid in 2026 (and What to Do Instead)

Investing is no walk in the park. The market is buzzing with volatility, speculation, and plenty of noise that can trip up even the most seasoned investors. If you’re trying to build long-term gains and protect your investment portfolio, it’s absolutely crucial to steer clear of the five big investing mistakes I see folks making right now.

Why does this matter so much? Because investing involves risk. Sometimes that risk is greater than we realize. And let’s face it, even professional investors can fall into these traps when the market gets wild.

So, whether you’re a new investor looking to break into the market or you’ve been investing for years, let’s dissect the common mistakes investors tend to make. More importantly, we'll lay out what you can do to stay on track for your financial goals.

Mistake #1: Overconfidence and Hubris

When the stock market is on a roll, it’s easy to feel like a genius. The Dow jumped nearly 14% in 2023 and another 13% in 2024. The S&P 500, led by the so-called “Magnificent 7,” soared even higher. It’s tempting to think you’ve cracked the code. I get it. I've felt the same way.

But here’s the catch: short-term market volatility can fool us into thinking we’re smarter than we are. Many investors have mistaken a rising market for investing skill. I've fallen for that trap too. It’s a classic case of hubris.

Overconfidence can sneak up on anyone. I’ve made my biggest investing mistakes when I stepped outside my circle of competence. It's the moment I started investing in businesses I didn’t fully understand that I realized I was making a blunder. Trust me, it’s a humbling experience. That’s why it’s so important to know your limits and focus on companies you truly get.

Rule #1 Tip:

Before making investment decisions, ask yourself: “Do I really understand how this company makes money, and can I explain it to a friend?” If not, it’s time to dig deeper or move on.

Mistake #2: FOMO in a Hot Market

Ever felt that itch when everyone around you is bragging about their latest stock wins? You’re not alone. FOMO, the fear of missing out, can drive even the calmest investors to make emotional decisions.

When markets are climbing, it’s easy to get swept up in hype. Maybe your neighbor doubled their money on a penny stock, or your friend can’t stop talking about Bitcoin. Suddenly, you’re tempted to buy individual stocks or emerging markets you’ve never researched, just to avoid feeling left out.

But here’s the reality: just because a stock is down doesn’t mean it’s a bargain. Remember Yahoo in 1999? Its price-to-earnings ratio hit a mind-blowing 11,000. Investors piled in, convinced they’d found gold, only to watch the bubble burst, and it turned into a declining market. Profits vanished.

Rule #1 Tip:

If you’re considering a “hot tip,” pause and ask yourself, “Am I buying this because it fits my financial plan, or just because I’m afraid of missing out?” Your behavioral biases play a powerful role in how you manage your investments. It's critical that you're aware of them.

Mistake #3: Recency Bias—Thinking Trends Will Last Forever

Recency bias is sneaky. It convinces us that whatever’s happening now will keep happening forever. If the market’s up, we assume the good times will roll on. If it’s down, we panic and think it’ll never recover.

This mindset leads to all sorts of common mistakes:

• Buying overpriced stocks because we think prices will keep rising.

• Selling quality companies at a loss, fearing things will only get worse.

But here’s the thing: the market is emotional in the short term and rational over the long haul. Ben Graham, one of the great financial analysts, put it best: “In the short run, the market is a voting machine, but in the long run, it is a weighing machine.”

Rule #1 Tip:

I’ve watched investors panic-sell during economic downturns, only to regret it later when the market rebounded. Staying invested through short-term market volatility is often the key to long-term gains.

Mistake #4: Gambling with Leverage and Options

Let’s talk about risk tolerance. In a volatile market, some investors try to juice their returns by using leverage ortrading options. Now, these tools aren’t inherently bad.

But only if you really know what you’re doing.

Here’s the rub: most investors aren’t Warren Buffett. He may use options, but he’s the house, not the gambler. For the average investor, betting big with borrowed money or complex trades can lead to devastating losses, especially if interest rates rise or bond prices swing.

If you’re tempted by leverage or options, make sure you understand the tax consequences, transaction costs, and the real risk you’re taking on. Sometimes, sticking to index funds, mutual funds, or a diversified portfolio is the smarter move.

Rule #1 Tip:

Consider your time horizon and whether you’re prepared to weather negative returns if things don’t go as planned.

Mistake #5: Leaving Your Circle of Competence

This one hits home for a lot of people. Investors often chase the latest trends without really understanding the underlying business. Maybe it’s tech stocks, maybe it’s emerging markets. Whatever it is, it's a financial blunder to leave your circle of competence.

Let’s be honest: if you can’t explain how a company makes money, you’re not investing. You’re gambling.

When the market takes a dive, you won’t know whether to hold, buy more, or cut your losses.

The Rule #1 approach? Only invest in businesses you truly understand. That means knowing their assets, their competitive advantage (or “moat”), and their future performance prospects.

Rule #1 Tip:

Before adding a company to your investment portfolio, ask: “Would I be comfortable owning this business if the stock market closed for five years?” If the answer is no, it’s time to reconsider.

Mistake #6: Trusting the Wrong CEO

The second big mistake is backing a CEO who's in it for themselves, not for shareholders.

A short-term, self-interested CEO can wreck even a good company. Watch out for the signs:

• Declining

  Return on Invested Capital (ROIC)

• Rising debt

• Flashy acquisitions or overhyped “next big things”

• Interviews and press releases that say a lot but explain nothing

Buffett puts it bluntly: “You want a business that's so good an idiot can run it—because someday one will.”

If you see a CEO borrowing money to chase headlines rather than building long-term value, step back.

Mistake #7: Ignoring the Moat

A business without a competitive advantage (a moat) is like the city of Troy: it might look impressive today, but it's vulnerable to being wiped out. In investing, a moat is what separates a strong, lasting business from one that’s just riding a temporary wave.

Moats protect profits. They might come from:

• Brand loyalty (Coca-Cola, Ferrari, Porsche)

• Network effects (Netflix)

• Switching costs (Apple ecosystem)

• Scale advantages (Ford trucks, Lululemon)

A simple test: if a company can raise prices without losing customers, it likely has a moat. If anyone can copy the business model tomorrow, it doesn’t. No moat means no protection. And without that protection, your investment is exposed. The moment competition heats up or the market changes, those companies can lose ground fast. Then your investment suffers.

So, when you’re evaluating a business, always ask yourself: what’s their moat? How are they defending their profits? Finding companies with strong, durable moats is one of the best ways to invest with confidence and reduce your risk over the long term.

Mistake #8: Overlooking Dangerous Debt

Debt is a silent killer. It doesn't matter how strong a business looks.Too much debt can send it into bankruptcy, wiping out shareholders completely.

Here's my simple rule: if a company has more debt than it can pay off with a couple of years of earnings, forget it.

As Buffett says: “If you're smart, you don't need to borrow money. And if you're dumb, debt will ruin you.”

Debt becomes even riskier when market conditions change. As we all know, markets go through ups and downs, and this market volatility can make debt much harder to manage.

When interest rates rise, bond prices can fall. This is known as interest rate risk, and it can also impact stocks and other investments. During an economic downturn, many investors tend to get nervous. Some try to time the market or make rash decisions. Both of these approaches often lead to unnecessary losses or negative returns.

It’s important to stay focused on your long-term strategy and avoid panic selling in a down market. Having a clear plan helps you manage risk and keeps your investments moving in the right direction.

Using dollar cost averaging can also help. Invest a fixed amount regularly to avoid putting all your money in at once and reduce the impact of price swings. Staying invested and being prepared for market fluctuations will support your financial goals and long-term success.

Market Conditions and Economic Downturns: What Investors Should Know

Investors may miss out on long-term growth by focusing too much on negative news headlines. Past performance does not guarantee future results, especially with mutual funds or emerging markets. Always consider tax consequences before making changes to your investments.

Mistake #9: Forgetting About Value

The final, and perhaps most common investing mistake, is not knowing what a business is worth.

Price and value are not the same. You wouldn't buy a violin at a garage sale without knowing whether it's worth $500 or $500,000. The same principle applies to investing in companies. You need to know the true value before you commit your money.

Even the best business is a bad investment if you overpay. That's why Rule #1 investors insist on a margin of safety, which is buying a business at 50% below its fair value. This margin protects you against uncertainty, recessions, rising rates, and slower growth.

Don’t just look at the price tag. Do your research, know what the business is truly worth, and never settle for less than a fair deal. That’s how you build wealth, the Rule #1 way.

How to Invest Smarter in 2025

So, how do you avoid all these mistakes?

Have a proven strategy. At Rule #1, our strategy helps you:

• Evaluate the Meaning of a business

• Understand the Moat (competitive advantage)

• Trust in solid Management

• Ensure a Margin of Safety

• Analyze the Big 5 Numbers (ROIC, EPS, Sales, Equity, Free Cash Flow)

This is Warren Buffett-style investing. It’s not about guessing what the market will do next. It’s about buying wonderful businesses at wonderful prices—and being patient.

If you follow this strategy, you won’t get rattled when stocks dip or tempted when things are soaring. You’ll invest like a business owner, not a speculator.

Ready to Learn Rule #1 Investing?

If you’re ready to take the next step, I’d love to invite you to our 3-day Rule #1 Investing Workshop. We’ve taught over 25,000 people how to invest using this exact system.

It’s live, online, and packed with everything you need to become a confident investor.