5 Costly Mistakes Investors Are Making in 2025 (and How to Avoid Them)

Why Avoiding Mistakes Matters More Than Finding Winners

Warren Buffett always says, “The first rule of investing is don’t lose money.” That wisdom is more important than ever in 2025. Too many investors think investing is about picking the next Tesla, Apple, or Netflix before it explodes in value. But in reality, successful investing is less about finding the big winners and more about avoiding the obvious losers.

When you protect yourself from mistakes, you dramatically increase your odds of compounding wealth safely. So let’s talk about the five costly mistakes I see investors making again and again—and how you can sidestep them using Rule #1 Investing principles.

Mistake #1: Investing in Businesses You Don’t Understand

One of the most common—and dangerous—mistakes is investing in businesses you don’t understand.

If you can’t clearly explain how a company makes money, what drives its growth, who its competitors are, and what risks it faces, you have no business buying its stock. Buffett calls this your “circle of competence”. If a company lies outside that circle, leave it alone.

Good management teams should be able to explain their business clearly in their annual reports. If you read five or ten years of reports and still can’t explain the company in simple terms, that’s not your fault—it’s a red flag.

Staying inside your circle of competence is like driving at night with your headlights on. Outside of it? You’re blind, and the moment markets shift, you won’t know what to do.

Mistake #2: 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 #3: 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.

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)

If a company can raise prices without losing customers, it likely has a moat. If anyone can replicate it tomorrow, it doesn’t. No moat means no protection, and no protection means your investment can collapse the moment competition heats up.

Mistake #4: 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.”

Mistake #5: Forgetting About Value

The final—and perhaps most common—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 is true in investing.

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

If you’re paying for perfection, you’re speculating—not investing.

The Rule #1 Way: Protect Yourself First

At the end of the day, avoiding mistakes is just as important as spotting opportunities. By staying inside your circle of competence, choosing the right management, demanding a wide moat, steering clear of heavy debt, and only buying with a margin of safety, you give yourself the best shot at compounding wealth safely.

The future is always uncertain—but when you invest with discipline, you don’t need certainty. You need a process. And that’s what Rule #1 Investing is all about.

Call to Action

If you want to learn how to calculate value, find companies with moats, and avoid these costly investing mistakes, join me in my Rule #1 Investing Workshop. I’ll walk you step-by-step through the exact strategies I’ve used for decades to invest safely and successfully.