The Biggest Investment Mistakes I've Seen Successful People Make

Some of the most financially successful people I have advised are exceptional at what they do. They have built businesses, led organizations, developed valuable expertise or accumulated wealth through years of disciplined work.

That does not automatically make them successful investors.

Investment decisions involve uncertainty, taxes, emotion and the uncomfortable possibility of being wrong. The same confidence that helped someone succeed in business can become a liability if it convinces them that one stock, one industry or one past winner cannot fail.

Over 35 years, I have seen three mistakes repeatedly cause damage: panicking during declines, owning investments without understanding them and refusing to sell solely because of taxes.

Mistake 1: Treating fear as an investment strategy

When markets fall, investors often feel that doing something must be safer than doing nothing. Selling provides immediate emotional relief because it appears to stop the uncertainty. But the decision creates a second problem: when will the investor get back in?

The headlines that caused the sale rarely disappear overnight. By the time the news feels safe again, the market may already have recovered substantially. The investor who sold to avoid uncertainty then faces the difficult decision of buying back at a higher price.

This is why I ask frightened clients to put an X on the calendar. Months later, many cannot remember what caused each moment of fear. The exercise helps demonstrate how frequently a long-term strategy can be challenged by a short-term event.

That does not mean every decline should be ignored. A change in the client's health, income, liquidity needs, family circumstances, time horizon or tolerance for loss can justify a portfolio change. A deterioration in an investment can also justify action. The mistake is allowing fear itself to become the decision-making process.

Mistake 2: Not knowing what you own or why you own it

Clients should understand the basic purpose and risk of every meaningful investment in their portfolio. They do not need to master every technical detail, but they should know why it is there, how it is expected to behave and what could cause it to lose money.

I never want a client to wake up, see that an investment has risen or fallen sharply and discover for the first time that such a move was possible. The result may still be disappointing, but it should not be completely incomprehensible.

This is part of the advisor's responsibility. We should explain the investment in plain language, connect it to the client's objective and discuss risk before volatility arrives. If the client cannot explain why something is owned, the advisor should be able to do so clearly.

Knowing what you own also makes it easier to respond intelligently when conditions change. During COVID, we examined the sectors clients held and the financial strength of the underlying companies and industries. The question was not simply whether prices were down. It was whether each investment could withstand an extended economic shutdown and whether the original reason for owning it remained valid.

Mistake 3: Letting the tax tail control the investment

Taxes matter. After-tax results are what clients ultimately keep, and ignoring tax consequences can be an expensive mistake. But refusing to sell an investment solely because a gain will be taxable can be even more expensive.

Consider an investor who owns 1,000 shares purchased at $100. The stock rises to $200, creating an unrealized gain of $100,000. The investor refuses to reduce the position because selling would create a tax bill. The stock subsequently falls to $80. The tax was avoided, but so was the gain, and the investment is now worth less than the original purchase price.

I have seen versions of this happen, particularly with technology and other rapidly appreciating stocks. Investors watch a position climb to extraordinary levels and become anchored to the highest price it reached. The tax liability feels concrete, while the risk of losing the gain feels hypothetical. Unfortunately, markets have a way of making hypothetical risk very real.

When a client tells me, 'I do not want to sell because of the taxes,' my response is to look at the portfolio holistically. There may be capital losses elsewhere that can offset part of the gain. A staged sale may be appropriate. Charitable planning or other strategies may be worth discussing with the client's CPA and attorney. Sometimes the correct decision is still to hold. But the analysis should consider the entire financial picture, not stop at the existence of a tax bill.

That broader conversation has sometimes revealed accounts held elsewhere, investments that no longer fit and opportunities to coordinate the client's assets more effectively. It improves the decision because we are no longer evaluating one stock in isolation.

Concentration deserves special attention

A related mistake is allowing one successful investment to become an outsized percentage of the portfolio. This often happens with founders, executives, longtime employees or investors who bought a technology company early. The position may be the reason they became wealthy, which makes reducing it emotionally difficult.

Diversifying can feel like turning away from the investment that created the success. But the financial question changes as the position grows. The issue is no longer only how much more the stock might appreciate. It is how much of the family's security depends on one company, one management team and one industry.

The answer does not always require selling everything. It may involve gradual reductions, tax-aware planning, hedging where appropriate, charitable strategies or building other assets around the position. The first step is acknowledging the concentration honestly.

Successful investing requires humility

The best investors I have known are willing to ask questions, reconsider assumptions and accept that no one controls the market. They understand that paying some tax can be the consequence of making money, that diversification may feel disappointing when one holding is soaring, and that a sound long-term plan will still experience uncomfortable periods.

Success in another field is valuable, but investing demands its own discipline. Know what you own. Understand why you own it. Respect concentration. Consider taxes without becoming paralyzed by them. And when fear takes over, return to the plan before making a permanent decision based on a temporary moment.

About Peter Cunningham

Peter Cunningham is a Senior Vice President at Muriel Siebert & Co., LLC in Beverly Hills. He entered the financial services industry in 1991 and advises individuals and families on investment strategy, income, risk management and major financial transitions. His approach emphasizes long-term relationships, clear communication and coordination with a client's tax and legal professionals.

Explore resources for the next generation of investors at siebert.com/genw