He’s been working with investors for the last 20 years. These are the two most common mistakes he’s seen

Sunday, 8 March 2026

Research found that advice from friends and colleagues is cited as an important source of information for 85% of investors under the age of 35, and 61% of these investors also said they were using social media as a source for investment information.

In 1720, Isaac Newton — arguably the smartest man who ever lived — made a terrible mistake.

After pocketing decent profits from the South Sea Company, he put his money back into the company just as the bubble peaked.

When it collapsed, Newton lost £20,000 to £30,000 — millions in today’s money.

By then in his 70s, a thoroughly humbled Newton could not bear to discuss the South Sea bubble for the rest of his life.

'I can calculate the motion of heavenly bodies, but not the madness of people,' he famously said during this time.

This story seemed particularly pertinent during a recent discussion with Chris Smith, the general manager of CMC Markets in New Zealand.

Smith has been with CMC Markets since it launched in New Zealand and has watched trading evolve from phone calls and fax machines to instant trades on mobile apps.

Chris Smith has witnessed huge changes in how trading occurs over the last 20 years.

In all that time, he’s seen that human behaviour tends to move more slowly than technological change.

“I’ve found over the last 20 years that the market is very humbling,” he tells me.

“There are many ways to make money, but there are just as many ways to lose money. And the market will humble you if you get too greedy.”

Too smart to screw up

Greed can manifest in many ways, and it doesn’t just affect Wall Street bankers doing their best to cosplay Gordon Gekko.

Ordinary people, according to Smith, can quite easily fall into the allure of earning just a little bit more or taking a punt that might hurt them.

And it’s important to remember your intelligence won’t provide a shield against this simple human emotion.

“There have always been extremely smart people in the world in different fields who have made terrible investors,” Smith says.

Isaac Newton is a good example, but he isn’t the only one.

Actor Michael Douglas as Gordon Gekko from the 1987 Oliver Stone film 'Wall Street'.

The Mensa Investment Club was a study in which Mensa members (representing the top 2% of IQ) were tasked with investing money to see how effective they would be at making returns.

The results were nothing short of amusing. This group of incredibly smart individuals delivered an annual return of just 2.5%, underperforming the S&P 500 index (a fund tracking the performance of the 500 biggest companies in the US) by almost 13% per annum.

Another smart person who fell into the trap of believing in his own hype was Mark Twain, who lost fortunes over his career by investing in inventions that went nowhere.

Reflecting on his experience over the last two decades, Smith says the most common mistake investors make is assuming the good times will carry on indefinitely.

We’ve seen this with marijuana, crypto, the internet, software firms and even the current AI surge, he says.

'There's always a narrative that makes sense at the time, and it's very easy to believe that narrative will carry on forever,” says Smith, explaining that even intelligent people can fall into the trap of rationalising an investment they might hold.

Narratives and market hype change over time.

“If you look at the peaks in any major thematic story in stocks, you’ll see a common theme of change,” he says.

Recent tech sell-offs show how quickly sentiment can turn, Smith says, pointing to software stocks like Xero, which have tumbled from pandemic-era highs.

The point here is that even the smartest people among us don’t have the ability to predict when the mood is going to shift, or when things will come crashing down.

Assets, says Smith, will eventually return to the mean, and investors need to remember that the market doesn’t care what you think will happen next.

Desperate to be right

In 2012, billionaire hedge fund manager Bill Ackman bet US$1 billion that Herbalife would collapse.

He threw his time and energy into this bet, believing he was right, but the stock wouldn’t die. Herbalife kept trucking along despite Ackman’s best efforts and an investigation by the Federal Trade Commission. With every passing year, Ackman lost more money.

By the time he exited in 2018, the dogged belief that he was right had cost his company the full US$1 billion.

“Stubbornness is huge in financial markets,” says Smith, explaining that many investors don’t like the feeling of being wrong.

“Investors feel better if they can quantify it or justify their position, but they need to recognise there are many things beyond their control.”

He says that when smart people lose money, they often look for a scapegoat (politics or a specific news event) rather than admitting their entry price was bad or their theory was wrong. Ego, he says, often prevents them from exiting a losing position before it hits zero.

Smith says younger investors often struggle most with losses.

“If you’re a younger investor and you lose $1000 versus an older investor who’s been around, you’ll just have a different reaction,” he says.

“But to be honest, corrections in the market are really hard to deal with because no one likes to see a big drop.”

And that simple rule has remained true regardless of how Kiwis invest. Over the last few decades, we may have moved from landlines to Nokias and on to iPhones, but behavioural habits remain intact.

If anything, new technology has simply made it easier to act on those emotions.

So what’s the worst investment you’ve ever made? How did it go wrong? And what advice would you offer to other investors? Let us know in the comments section below.