5 Big Investing Mistakes to Avoid in 2025 (and What to Do Instead)

In 2025, we're seeing a market packed with volatility, speculation, and some seriously dangerous habits that can derail even seasoned investors. If you're trying to build long-term wealth and protect your portfolio, you need to avoid these five big mistakes that I see investors making right now.

These traps are especially common during turbulent markets—when FOMO is high, confidence is inflated, and strategy is often the first thing to go out the window.

Let’s break them down and talk about how to avoid falling into these all-too-common investing pitfalls.

Mistake #1: Overconfidence and Hubris

Let’s face it—markets have been booming. The Dow jumped nearly 14% in 2023 and another 13% in 2024. The S&P 500, powered by the “Magnificent 7” (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla), soared 24% and 23% in those same years.

When returns are that high, it's easy to think you're a genius.

But here's the thing: short-term success can be a dangerous teacher. Many investors mistake bull market gains for skill. That’s hubris. It often shows up as:

• Overconfidence: Believing you can’t lose.

• Overprecision: Thinking you can perfectly predict growth or value.

• Confirmation bias: Ignoring red flags that contradict your beliefs.

Even experienced investors fall into this trap. I’ve made some of my biggest mistakes when I thought I understood a business and really didn’t. That’s why I preach staying within your circle of competence—the set of businesses you truly understand.

Mistake #2: FOMO in a Hot Market

The fear of missing out is real—and it’s killing investors right now.

In rising markets, you hear friends brag about Bitcoin gains or doubling their money on a penny stock. That kind of buzz triggers knee-jerk decisions. People buy falling stocks assuming they’re “on sale,” without ever checking the business’s value.

Just because a stock is down doesn’t mean it’s undervalued.

Take Yahoo in 1999—it had a P/E ratio of 11,000. Investors bid it up to the point where it needed to earn as much as the entire U.S. economy just to justify the price. That’s what FOMO can do. The bubble popped, and Yahoo’s value was wiped out.

Don’t get sucked in.

Mistake #3: Recency Bias—Thinking Trends Will Last Forever

Recency bias is when we think the future will look like the recent past. In bull markets, it tells us prices will keep rising. In bear markets, it convinces us things will never recover.

This kind of thinking leads investors to:

• Buy overpriced stocks when they should be selling.

• Sell undervalued companies when they should be buying.

Markets are emotional in the short term but rational in the long term. As Ben Graham put it, “In the short run, the market is a voting machine, but in the long run, it is a weighing machine.”

Understanding this truth is critical to not panicking—or overextending—when the cycle inevitably shifts.

Mistake #4: Gambling with Leverage and Options

Too many investors are turning to high-risk tools like leverage and options trading to boost returns—especially in volatile markets.

These aren’t inherently bad if you understand how to use them wisely. Warren Buffett is one of the biggest options traders in the world. The difference? He’s the casino, not the gambler.

Most investors aren’t that savvy. When you bet big with borrowed money or risky trades, and it goes south, the results can be devastating.

Mistake #5: Leaving Your Circle of Competence

It happens all the time. Investors chase hype without understanding the business they’re buying.

Nvidia is booming? You jump in. GameStop drops 50%? You jump in. But if you don’t understand what makes the business tick, how will you know whether it’s a good deal or a falling knife?

If the market crashes, how do you know whether to hold, buy more, or run for the hills?

The Rule #1 way is to only invest in companies you truly understand—from how they make money to their future prospects. That’s the only way to make smart decisions when the market gets rocky.

How to Invest Smarter in 2025

So, how do you avoid all these mistakes?

Have a proven strategy. At Rule #1, our strategy helps you:

• Evaluate the Meaning of a business

• Understand the Moat (competitive advantage)

• Trust in solid Management

• Ensure a Margin of Safety

• Analyze the Big 5 Numbers (ROIC, EPS, Sales, Equity, Free Cash Flow)

This is Warren Buffett-style investing. It’s not about guessing what the market will do next. It’s about buying wonderful businesses at wonderful prices—and being patient.

If you follow this strategy, you won’t get rattled when stocks dip or tempted when things are soaring. You’ll invest like a business owner, not a speculator.

Ready to Learn Rule #1 Investing?

If you’re ready to take the next step, I’d love to invite you to our 3-day Rule #1 Investing Workshop. We’ve taught over 25,000 people how to invest using this exact system.

It’s live, online, and packed with everything you need to become a confident investor.