Some of my most valuable stock market lessons have come from getting things wrong and losing money. This helped me avoid repeating the same errors. But here are three investing mistakes I wish I’d been wise enough to avoid in the first place.

Trying to time the market 

The first error was trying to time the market. For example, selling all my shares shares when trouble was brewing in the global economy, with the aim of buying back in once it felt safe to do so. 

Problem is, market timing requires an investor to be right twice:

• Predict the top to sell before the fall.
• Call the bottom to buy back in before the recovery.

This is difficult to do once, let alone regularly. Moreover, history shows that the best stock market days are actually during downturns. Missing out on those when the market suddenly takes off badly damages long-term returns.

Nowadays, I stay invested at all times. I may trim here and there, but I don’t sell all my portfolio and sit in cash.

Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in the corrections themselves.

US investor Peter Lynch 

Overpaying for shares

The second mistake I made in the past was overpaying. For instance, I first bought Shopify shares in 2018 as a way to invest in e-commerce’s growth as it’s a leading platform that enables entrepreneurs to sell online worldwide. 

Unfortunately, I added to my position at a rather rosy price in 2020 as Covid lockdowns turbocharged online shopping. By 2022, I was nursing a hefty paper loss after a spectacular post-pandemic crash of 85%.

Fortunately, the stock’s rallied 550% since 2022’s lows, so it’s been a good investment for me. But I bought in 2020 when the stock was overvalued and I paid the price afterwards. 

Caving in to FOMO

In my experience, one of the hardest things to control as an investor is FOMO (fear of missing out). I used to give in all the time as a beginner.

Looking at the explosive share price chart of Rolls-Royce (LSE:RR), it could be easy to feel FOMO. The FTSE 100 stock is up 1,700% in four years! 

This has been driven by a remarkable turnaround. Management now expects an underlying operating profit of £4.9bn-£5.2bn by 2028, up from £652m in 2022.  

Looking ahead, the firm’s set to continue benefitting from multiple powerful tailwinds, including a defence spending boom, the AI revolution, and small modular reactors (SMRs). 

Given this, someone might be tempted to invest a chunky lump sum into the company today. However, I’m unsure this is the right strategy.

One risk is that fuel costs are soaring, forcing airlines to cut routes to save costs. Fewer hours flown could reduce the cash Rolls-Royce collects under its engine-flying contracts. 

On top of this, the stock’s quite pricey at nearly 31 times this year’s forecast earnings. Therefore, it could be risky going all-in today, especially if it’s FOMO driving the decision. 

Instead, investors may want to consider taking a small stake then building out a position over time. With inflation driving up costs and potentially interest rates, there could be attractive dip-buying opportunities on the horizon. 

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Ben McPoland owns shares in Rolls-Royce and Shopify.