Overinvestment: An All-Encompassing Dilemma

Overinvestment in the stock market is a common mistake made by even the most experienced investors.

People overinvest for a few specific reasons. The first is the rumor of a spike in stock prices. The phrase heard over and over is “Buy low; Sell high.” At certain points in a selling period, valuable stock goes for lower prices (a very common time for this to occur: Summertime. We continue). Knowing the swells and declines in the market, an investor cannot help but take advantage of a moment where the most expensive, valuable stock is below the average price, especially when it is significantly below the average price. The smart investor knows that, in most cases, a stable line of stock doesn’t remain at a low price and high availability for a long period of time.  In fact, it could be as short as a few minutes of fluctuation. That stock, in most cases, returns to normal or even rises to a more expensive price than before. One feels the need to take advantage of such a window of opportunity.

Another reason for overinvestment is because it’s a thrill: some people with a large amount of disposable income find no harm in investing a lot of cash in something that may or may not gain a significant return. When there is little risk of coming to ruin because of a single or a number of seemingly unimportant investments, more risk is taken with less care.

A final reason would be the ever-present pride cycle at its peak: arrogance. Some people are simply convinced that they have enough luck and a pattern of success that makes them immune to failure. No matter how dangerous the game, how many different investments are involved, and who they have to step on to get there, they are willing to let their ego do the driving.

So what happens at the end of the round? What happens when the dividends are ready to be given out? What do the statistics say about being in too many places at one time? Chances of all those investments turning out good are so very, very slim. In fact, the probability of all of your investments going under is oftentimes higher than getting a return on each of the individual investments. Then what? You’re in trouble… a lot of it. And you know what? You’ll have no one to blame but yourself because you either  1. Followed a trend,  2. Sought a thrill without accounting for the possible consequences, or  3. Got cocky about your investing abilities.

In the process of being cornered and quartered? Yup. Pretty much haha