Warren Buffett likes to say that "the first rule of investing is don't lose money and the second rule is don't forget the first rule."
Fight Club jokes aside, this advice is easy to understand but very hard to live by.
The reality is investing is a risky game and there are many mistakes to avoid. Often the best thing to do is to just give it a go, and learn along the way – nothing makes you learn faster than losing your own money. But if you (understandably) wish to avoid this route, the second-best way is to learn from others' mistakes and try not to repeat them.
Check those emotions
Before revealing my cardinal sin of investing, I have to give an honourable mention to the impact of emotion. I feel like the biggest mistake beginners (and sometimes non-beginners) make is to underestimate the emotions that come with investing in shares.
Understanding the devastation you will feel if your stocks fall dramatically in value or the pride when your picks might go through the roof is extremely important. These two emotions NEED to be both anticipated and controlled if you are set on investing. If left unchecked, they will potentially destroy the returns you might end up with.
My cardinal sin
In addition to controlling your emotions, another piece of sagely advice I can offer (only because I have been guilty of it) is this: Don't buy stocks because other people tell you to.
One of my first investments was in Coca-Cola Amatil Ltd (ASX: CLL). I was drawn to this stock because I had heard that Mr Buffett held the US Coca-Cola Company as one of his largest positions and had done very well. It was that simple.
It was only later I found out the details. Mr Buffet had bought Coke back in the early 1980s, when it was on sale for a fraction of what it was worth. Buffett has since enjoyed massive capital gains and glorious dividend growth that now pays him 60% of his initial investment every year in dividends. None of this was remotely relevant to a 2014 investment in Coca-Cola Amatil. As I learned the hard way.
Foolish takeaway
If you take anything away from this, just remember that someone else's stock pick, no matter how clever they are, may not be right for you.
Always do your own research and draw your own conclusions when it comes to shares. No one will look out for your money better than yourself, so make it count!
