SerpApi.Org
The S&P 500 has delivered three consecutive years of double-digit returns, and headlines about new highs can make it feel like the market only moves up. But research consistently finds that the biggest drag on a portfolio is often not the broader market, but human behavior. The tendency to chase what is hot and flee what is falling quietly erodes returns year after year.
If you are focused on doing better financially, steering clear of two common mistakes could matter more than picking the perfect stock. Here is how each one plays out and what the data says about the damage.
1. Chasing hot stocks because everyone else is buying
When a stock is surging, and social media feeds are full of screenshots showing massive gains, the fear of being left behind can overwhelm careful analysis.
A MarketWise survey of 1,002 U.S. retail investors, collected in May 2026, found that 48% had made a fear-of-missing-out-driven purchase in the past 12 months, often buying assets already trading at all-time highs. Younger investors felt the pull most sharply, with 63% of Gen Z respondents reporting at least one FOMO trade in the same period.
How speculative bets outran fundamentals in 2025
Bespoke Investment Group data cited in The Wall Street Journal showed that of 14 Russell 3000 stocks that more than tripled between the April 8, 2025 market low and late June 2025, 10 were unprofitable companies. During that same stretch:
- The 858 money-losing stocks in the index posted average gains of 36.4%.
- The 500 stocks with the lowest price-to-earnings ratios returned just 15.6%.
That gap illustrates how far momentum-driven buying can drift from the fundamentals that tend to support lasting value over time.
Why the hype keeps costing investors money
The MarketWise survey also found that 42% of retail investors reported losing money on emotional trades over the past year, with average losses reaching $1,606.
Liz Ann Sonders, chief investment strategist at Charles Schwab, warned in a May 2026 CNBC appearance against treating the market like a "casino." Her concern reflects a broader worry among strategists that momentum and speculation, rather than earnings and business quality, have been steering too many portfolio decisions this cycle.
Enjoying our content? Click the Follow button above to see more from us.
What makes this mistake so hard to resist
FOMO works because it feeds on urgency. You see a stock double, read a thread praising it, and the idea of missing more gains triggers a reaction that bypasses your usual decision-making process.
A MarketWise finding underscores the disconnect: 64% of investors describe themselves as rational, yet nearly half made at least one emotionally driven purchase in the same 12 months. The gap between how you see yourself and how you actually behave in a fast-moving market is where the real damage tends to happen.
2. Selling into pullbacks and waiting for the 'right' time to get back in
The other side of the emotional coin is panic selling. When markets dip, pulling your money out and waiting for calm feels like a smart defensive move. In practice, it means locking in a loss and then facing an almost impossible question about when exactly to buy back in.
The MarketWise survey found that 25% of retail investors had panic-sold during a geopolitical event, only to watch prices recover within weeks of their exit. Market timing requires getting two decisions right, when to sell and when to buy back in, and the odds of nailing both consistently are extremely low.
The behavior gap that quietly eats your returns
DALBAR's 2026 Quantitative Analysis of Investor Behavior report measured the damage from badly timed trades. In 2024, the average equity investor earned 16.54% while the S&P 500 returned 25.02%, a gap of 848 basis points that the firm described as the second-largest of the past decade.
Even in 2025, when the gap narrowed to 72 basis points, total equity withdrawals hit 6.91% of assets, including a record single-month withdrawal rate of 2.30% in July 2025.
The math behind staying invested
J.P. Morgan Asset Management puts the cost of stepping out of the market in sharp relief. Using S&P 500 Total Return Index data through February 2025, a fully invested portfolio returned 10.60% annualized, but:
- Missing just the 10 best days cut that return to 6.37%.
- Missing 20 best days dropped it to 3.69%.
- Missing 30 best days reduced it to 1.53%.
The firm also found that seven of those 10 best days occurred within 15 days of the 10 worst days, meaning the strongest recoveries tend to arrive right when the fear is greatest. If you sell during a downturn, you are likely sitting on the sidelines when the biggest bounce-back days arrive.
Bottom line
Both mistakes share the same root cause, which is letting short-term emotion override a long-term plan. Chasing a hot stock and bailing out of a falling one feel like opposite moves, but both trade discipline for impulse and tend to leave you worse off than staying the course.
If you are ready to start investing or rethinking your current approach, staying diversified, focusing on quality businesses with real earnings, and resisting the urge to react to every headline could serve your portfolio far better than trying to catch the next breakout name. Even something as straightforward as dollar-cost averaging into a low-cost broad-market index fund may help by automating the process and removing much of the emotional decision-making that tends to erode returns over time.
