There is a reason the same mistakes keep appearing. It is not because people are careless or uninformed. It is because certain ideas feel true, even when the evidence says otherwise.
The myths that trip up new investors are not random. They follow patterns, rooted in how human brains respond to uncertainty, social pressure, and recent memory. Understanding why these ideas persist is the first step toward not falling for them.
This is general educational information, not personal financial advice.
Why Myths Survive#
Before looking at specific myths, it helps to understand the psychology that keeps them alive.
Recency bias. People give more weight to what happened recently than to long-term patterns. A market that rose last year feels like it will keep rising. A stock that fell yesterday feels dangerous. Neither feeling is a reliable guide.
Social proof. When everyone around you is doing something, it feels safer to join in. If friends are buying a particular asset, or if the news is full of stories about people making money, the urge to follow is strong. But crowds can be wrong, and often are at the worst times.
FOMO (fear of missing out). This is the emotional cousin of social proof. The anxiety of watching others profit while you sit still can push people into decisions they would not otherwise make. FOMO trades are rarely good trades.
Narrative over numbers. A good story is easier to remember than a statistic. "My uncle doubled his money on a mining stock" sticks in the mind longer than "diversified portfolios have historically outperformed concentrated bets." Stories spread; data does not.
These forces do not make people foolish. They make people human. But awareness of them creates room to pause before acting.
Myth 1: "I Can Time the Market"#
The idea is simple: buy before things go up, sell before things go down. If you can do this reliably, you win.
The problem is that almost no one does it reliably. Studies of retail investor behaviour consistently find that frequent traders underperform the market, often significantly.¹ The costs of trading, combined with the difficulty of predicting short-term movements, erode returns over time.
Even professionals struggle. Missing just a handful of the best trading days in a decade can cut long-term returns dramatically. And those best days are often clustered near the worst days, when the temptation to sell is highest.
Counter-principle: Process beats prediction. A consistent approach, held through uncertainty, tends to outperform attempts to dance in and out.
Myth 2: "Hot Tips Work"#
Someone heard something. A friend of a friend works at a company. There is a rumour about a product launch. The stock is about to move.
This is one of the oldest patterns in markets, and one of the most dangerous. By the time a tip reaches a retail investor, any useful information has usually already been priced in by people with faster access and more resources.
Worse, some tips are not tips at all. They are manipulation. Pump-and-dump schemes rely on spreading excitement to push prices up before insiders sell. The people who buy on the tip are left holding the loss.
Counter-principle: If it sounds like a secret, treat it with suspicion. Good investments rarely arrive as whispers.
Myth 3: "This Time Is Different"#
Every market cycle produces a version of this phrase. New technology, new economy, new paradigm. The old rules do not apply.
Sometimes there are genuine structural changes. But more often, "this time is different" is a sign that prices have disconnected from fundamentals, and that the people saying it are looking for reasons to justify what they have already decided to believe.
History does not repeat exactly, but patterns rhyme. Bubbles form. Bubbles pop. The timing varies. The outcome rarely does.
Counter-principle: Scepticism scales with enthusiasm. The more certain everyone sounds, the more carefully the assumptions deserve to be examined.
Myth 4: "Guaranteed Returns Exist"#
They do not. Not in investing.
Any promise of guaranteed high returns is either a misunderstanding or a lie. Savings accounts and government bonds offer near-certain returns, but they are modest. Anything offering significantly more carries risk, whether disclosed or hidden.
Scams often use the language of guarantees. Legitimate investments do not. If someone promises you cannot lose, the most likely outcome is that you will.
Counter-principle: Return and risk are linked. There is no reliable way to earn high returns without accepting the possibility of loss.
Myth 5: "Leverage Early Accelerates Wealth"#
Leverage means borrowing to invest. The idea is that if markets go up, your gains are amplified. And that is true. But the reverse is also true: if markets go down, your losses are amplified too.
For someone early in their investing journey, leverage introduces fragility. A market decline that would be uncomfortable with your own money becomes catastrophic with borrowed money. It can force a sale at the worst time, locking in losses that might otherwise have recovered.
There are situations where leverage makes sense for experienced investors with high risk tolerance and stable income. But as a default starting strategy, it introduces more danger than opportunity.
Counter-principle: Compounding works without leverage. Time and consistency do the heavy lifting. Adding debt adds fragility.
The Pattern Behind the Myths#
Each of these myths has something in common: they promise a shortcut. A way to skip the slow, uncertain path of long-term investing in favour of something faster, smarter, or more exciting.
The reality is less glamorous. Most successful investors describe their approach as boring. They buy diversified assets, hold them for long periods, and resist the urge to tinker. The returns come not from cleverness, but from patience.
That is not a story that spreads easily. But it is one that tends to work.
Summary#
The myths that trap new investors persist because they align with how human minds naturally work: we overweight recent events, follow crowds, fear missing out, and prefer stories to statistics. Understanding these patterns does not make anyone immune, but it creates space to pause before acting. The counter-principles are not secrets: process over prediction, scepticism over enthusiasm, patience over speed. They are harder to follow than to understand, but that is where the value lies.
Sources#
- Barber, B. M., & Odean, T. (2000). Trading is hazardous to your wealth: The common stock investment performance of individual investors. The Journal of Finance, 55(2), 773-806. https://doi.org/10.1111/0022-1082.00226