The Biggest Mistake Beginner Investors Make, According to the Rich Habits Podcast

Picture a first-time investor who sinks $200 into Intel shares and watches the position climb to $850, a 280% gain. The instinct is to feel like a genius and let it ride. According to Robert Croak and Austin Hankwitz of the Rich Habits Podcast, that instinct is the single biggest mistake beginner investors make. The vast majority of new day traders lose money in their first year of investing.

“The biggest mistake early investors make is they get greedy, they think they’re a genius, and they don’t take profits along the way,” Croak said on a recent episode. His mechanical rule removes the emotion. When a position is up 50%, sell 25% of the shares. When it climbs another 50% from there, sell another 25%. Continue the pattern. The objective is to “take all of my money out and play on the house’s money” while booking a win.

Consider a stock like Intel (NASDAQ:INTC | INTC Price Prediction), which is up about 197% year-to-date and 439% over one year. If you followed Croak’s rule, you would have trimmed the position several times on the way up, locking in cash long before any reversal. Hankwitz cited his own Amazon (NASDAQ:AMZN) buy of $150,000 at around $200 per share. Amazon now trades at $271.

Investors should always be balancing the risk or buying individual stocks vs. the return of index fund, the hosts said. “The only reason we invest into single stocks is because we have a deep conviction that that specific company is going to outperform the S&P 500 or the NASDAQ 100 over a specified period of time because of some specific investment thesis,” Hankwitz said. The S&P 500 has averaged about 12% since the mid-1930s.

Where the Profits Should Go

Croak directs reinvestment into the Vanguard S&P 500 ETF (NYSEARCA:VOO) or Invesco QQQ Trust (NASDAQ:QQQ), “good solid, long-term investments that everyone should own” that you can “let ride for life.” QQQ tracks the NASDAQ-100 Index with a rock-bottom 0.18% expense ratio and $385.27 billion in net assets, and is up 15% year-to-date. For a sector play, Hankwitz suggests the VanEck Semiconductor ETF (NASDAQ:SMH), which was up 32% year-to-date at the time of recording.

The cold water at the end: 85% of day traders lose money within the first year, and 97% lose money over three years, the hosts said. Their takeaway is straightforward: Trim positions on the way up, route proceeds into index funds, reserve cash for taxes, and avoid concluding that one early winner makes someone a stock-picker.