Speculating more than they are investing.
This is reflected in betting on rising prices of an asset class with no clear strategy in place, rather than pursuing a strategy of income via income-producing assets, for instance.
The safer investors feel and the more money they make in the capital markets, the more risk they are prepared to take on in order to increase their profits – as they feel a false sense of security. Hence, this leads to excessive risk-taking, which might end badly if the markets turn or their chosen stocks fall out of favour with other shareholders.
Furthermore, it is essential to control your emotions – as many emotionally driven trades often lead to losses. Positive and – worse – negative emotions that effect your state of mind and consequently your decision-making usually drive these losses, especially when markets are volatile.
Additionally, many investors do not have a disciplined investment approach – which is required to perform well in the capital markets. They go into a trade without having a clear exit strategy and would hold on to falling stocks in the hopes that they will rebound – which they might never do.
Therefore, it is important to be prepared for any scenario and have an exit strategy in place before entering a trade.