Investing Knowledge

 No one is a perfect investor. Even the world's most-respected investors have confessed to making errors.

In various annual letters, Warren Buffett has told his shareholders: "You'd have been better off if I had gone to the movies [this year]" and "I have erred [by] not making repurchases [of shares]."

In 2004, when asked at the Berkshire Hathaway (NYSE: BRK-A - news) annual meeting what his worst investing mistake was, he explained: "I set out to buy 100 million shares of Wal-Mart  at a [pre-split price of] $23. ... We bought a little and it moved up a little and I thought maybe it will come back a bit. That thumbsucking has cost us in the current area of $10 billion."

Here are some other common mistakes investors make. Avoiding the ones that apply to you can considerably boost your ultimate performance.

1. Accumulating credit card debt

It feels like free money, but it isn't. High (HCO.NX - news) interest rates increase your debt, making it harder and harder to pay off. That's reverse investing! If you're mired in debt, you won't even have a chance to make many of these other mistakes!

2. Not investing soon enough

You're rarely too young (or even too old) to invest. Kids have the most to gain from many decades of stock appreciation. But even retirees can benefit from leaving whatever money they won't need for five or 10 years in shares.

3. Investing too conservatively

In general, long-term investments will do better in the stock market. The long-term annual average return for the stock market over the past century is around 10%. You may do better or worse than that in the years that you invest, of course. But if you save for your retirement solely with bonds, gilts or even property, you may find that you've underperformed needlessly in the long run.

4. Having unrealistic expectations

What return do you expect from your shares? 20% per year? 30%? Well, snap out of it. Capita (LSE: CPI (NYSE: CPY - news) ) is one of the very best performing shares since the bottom of the last big recession, back in 1993. If you were skilful and lucky enough to pick up the shares back then, you'll have 'only' averaged 26% per year over the past 16 odd years.

That is head and shoulders above 99.5% of other companies over that period of time. To think you could earn those sort of returns across a diversified portfolio every year is pure fantasy. 

Expect an average of 10% annually from the stock market over long periods. To be conservative, be prepared for that average to sink a bit lower during your personal long-term investing period.

5. Over- or under-diversifying

If all your eggs are in two or three baskets, you're exposed to too much risk. Just imagine if you'd had much of your cash in Woolworths (Frankfurt: 886853 - news) or Northern Rock (LSE: GB0001452795.L - news) . Or even struggling companies like Lloyds Banking Group (LSE: LLOY.L - news) (LSE: LLOY) or Royal Bank Of Scotland (LSE: RBS.L - news) (LSE: RBS), both down more than 85% from their 2006 prices.

On the other hand, if you have too many baskets to count, then you probably aren't able to keep up with each company. Between eight and 15 shares is a manageable number for most people, although some do well with a few more or less.

6. Holding on too long

Why did you buy a given company? Are the reasons still valid? Has anything important changed? Have you gained as much as you expected? These are the sorts of questions you should mull over regularly. Be prepared to sell under certain circumstances, whether you've made or lost money so far.

7. Paying too much in commissions

Aim to pay no more than 3% per trade in commissions. So if you're buying £500 of shares, you'll want to pay £15, tops, for the trade. Fortunately, there are plenty of brokerages with modest commission fees, including our own Motley Fool Share Dealing Service, where commissions are a flat £10 per trade. Click here to learn more and open a trading account for free.

8. Letting emotions rule your investing

Don't be led by fear, which can have you jumping out of the market just when shares have fallen, or greed, which can have you hanging on to an overpriced winner, hoping to eke out a few more pounds of gain.

Similarly, don't stubbornly hang on to a loser, hoping to make back your lost money, when you could be selling and buying shares of a company in which you have far more confidence.

> If you're in the market for buying shares, consider opening an online broker account with The Motley Fool's Share Dealing Service. You can buy and sell shares in real time for a flat rate of just £10. Visit www.fool.co.uk to open an account for free today. 

> A version of this article was originally published on Fool.com. It has been updated by Bruce Jackson, who has an interest in Berkshire Hathaway shares.