Photo Credit: Nart Elbrus
If you want to know what is the core problem of the average person approaching the market (though this applies more to males than females, women have more native caution on average), it is chasing a hot idea. This can take a number of forms:
Getting tips from friends who have bought some stock that is currently popular in the market.
Doing the same thing with investors who talk or write about investing. The best investment advice is not flashy, and does not make for good video.
Looking at charts and buying something that is rising rapidly, because popular media say this is “The Next Big Thing.”
Buying the mutual fund or other pooled vehicle of some manager who has done very well in the past, and seems to never fail. (If you buy a mutual fund, don't buy one that has had a lot of money pile into it recently… usually a bad sign. Spend more time to see if the manager thinks in a businesslike way about assets that he buys.)
Going to a broker who is very well-dressed and confident, and talks really well, but who has no obligation to act in your best interests. If you don't know how he is earning his money from you, avoid him, because it usually means investments with high fees or hidden ways that you can lose, e.g. structured notes that offer a nice yield, but where possibilities to lose are more significant than you think. At best, he will give you consensus ideas and managers that deliver him above average remuneration.
Buying the newsletter of some overly confident person who claims to know the secrets of the market, which he will share with you and 100,000 other close friends for a mere $299/year! (Please read Mark Hulbert before buying a newsletter.)
Worse yet, giving into the fakery of those who try to bring you into a hidden opportunity. It can be a Ponzi scheme, a promoted stock, but they suggest returns that are huge… or, like Madoff, decent but not exorbitant returns that are altogether too regular.
