The threshold for investing is not high, but for newcomers, the scariest thing is not the market itself—it is the cognitive blind spots. The following ten common pitfalls are lessons many investors learned the hard way. This plain-language guide aims to save you from paying similar tuition.

Error 1: Ignoring Long-Term Compounding, Chasing Short-Term Trades
High-frequency trading often drags annualized returns down to 3%–4% because of idle periods, spreads, and taxes. By contrast, an 8% annual return compounded for 20 years turns ¥10,000 into roughly ¥46,600. Time magnifies compounding. Beginners should pick fundamentally solid, reasonably valued assets, set at least a three-year horizon, and use dollar-cost averaging or staged entries to reduce timing risk.

Error 2: Relying on Tips, Lacking Independent Research
Social-media chatter is abundant, but by the time “insider codes” circulate, prices usually have left the safety zone. Information asymmetry breeds herding. Investors must develop independent analysis: learn to read financial statements and industry reports, and track company filings. Use tools to aid comprehension and avoid outsourcing decisions.

Error 3: Over-Trading, Letting Costs Eat Returns
Frequent transactions see commissions, taxes, and spreads erode gains. In Hong Kong, a single trade can cost 0.2%–0.3%; ten turns a year consume 2%–3% of returns. Over-trading is also prone to emotional swings, leading to “small wins, big losses.” Set turnover limits and rebalance only when fundamentals deteriorate or valuations overheat; check prices less often.

Error 4: Concentrated Bets, Neglecting Asset Allocation
Putting all funds in one asset or sector is highly risky (e.g., the 2022 Hang Seng Tech plunge). Asset allocation smooths volatility by using low-correlated classes. Beyond the classic stock-bond mix, consider adding REITs or inflation-linked assets. Beginners can start with target-date or balanced funds.

Error 5: No Risk Control, Lacking Stop-Loss Plans
Deep losses are hard to recoup (a 50% drop needs a 100% gain). The essence of risk management is protecting principal. Set clear rules: price stop-loss lines (e.g., 15% below cost) and single-stock position caps (e.g., 10%). For disruptions like business model upheavals or fraud, have immediate contingency actions.

Error 6: Emotional Decisions, Buying High & Selling Low
Emotions drive entries at bull-market peaks and exits at bear-market bottoms. Countermeasures: draft concrete trading plans (execute when price hits set levels), use automation (DCA, limit orders), and divert attention to other life areas.

Error 7: Underestimating Costs & Inflation
Investing must factor in management fees, custody fees, taxes, and inflation. A fund’s nominal 10% return minus a 1.5% management fee, 0.5% custody fee, and 3%–4% inflation leaves modest purchasing-power growth. Calculate the real annualized return after all costs and inflation.

Error 8: Misusing Leverage, Overlooking Risk Amplification
Leverage magnifies gains and losses alike. In margin trading, hitting maintenance levels can trigger forced liquidation even if the long-term trend is right. Use leverage conservatively: allowable drop ÷ asset’s max intraday swing. Beginners should start with low leverage.

Error 9: Confusing Low Price with Value
A stock’s worth depends on market cap, cash flow, and growth potential, not absolute price. Penny stocks may have weak fundamentals and low liquidity. Apply PE, PEG, and discounted cash-flow tools to gauge price-value gaps, combined with industry trends. Prioritize quality companies.

Error 10: Standing Still, Ceasing to Learn
Markets evolve continually—quant strategies, AI trading, and policy shifts rewrite rules. Media highlights survivors, creating bias; short-term success doesn’t equal long-term skill. Investors must keep studying both hard knowledge and soft skills, read classics, track research, and refresh their thinking.