Mistake #1: Following Trends - Being the Bigger Idiot
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At least since the beginning of public investment markets, there have been bubbles. Investors see the price of something increasing, and want to own that thing. Isaac Newton, the renowned physicist and at one time the head of the English mint, lost a vast sum of money in a 17th century bubble. As humans, we are all susceptible to bubble thinking. An investor thinks, “I can buy this thing and resell it to someone else after it goes up in price by a lot.” An old Wall Street saying calls this the bigger idiot strategy: it depends on there being an even bigger idiot to buy from the first investor. But, of course, the price will only go up when there are more buyers who want it at a higher price. Bubbles burst when the last buyers are found and the demand collapses. By following hot investment trends, investors are opening themselves up to being the last idiots who can only sell at a much lower price.
