Warren Buffett: Top 3 investing mistakes to avoid

Adam Shell | USA TODAY

NEW YORK — Warren Buffett, the billionaire investor with the Midas touch, has a message for Main Street stock investors: "Don't beat yourself."

"The nice thing about investing in stocks is that, over time, equities are going to do well," Buffett tells USA TODAY. "American business is going to do well. America is going to do well. So you have the tide with you."

Building wealth in stocks is still the way to go, even though the ride can get bumpy from time to time, Buffett, 83, says.

But to really profit from stocks and build wealth over time, says Buffett, individual investors must avoid making costly mistakes that shrink their portfolio balances, just as a football team that wants to boost their odds of winning must avoid fumbling the ball away, throwing an interception or taking a penalty at a bad time.

"Don't beat yourself," the Oracle of Omaha says. "Beating yourself is half the problem."

USA TODAY asked Buffett to put on his personal finance hat and to tick off the three biggest mistakes amateur investors make. Here's Buffett's "Top 3 Mistakes to Avoid":

1. Trying to time the market. "People that think they can predict the short-term movement of the stock market — or listen to other people who talk about (timing the market) — they are making a big mistake," says Buffett.

2. Trying to mimic high-frequency traders. Buying stock in a good business and hanging on for the long term, he says, is a better strategy than flipping stocks like a short-order cook flips pancakes.

"If they are trading actively, they are making a big mistake," Buffett says.

3. Paying too much in fees and expenses. There's no reason to pay an expensive management fee to invest in a mutual fund when super-low-cost index funds that mimic large indexes like the Standard & Poor's 500-stock index are available, he says.

"If they are incurring large expenses in connection with their investing," says Buffett, "they are making a big mistake."

Buffett, of course, is famous for buying stocks when they are cheap, buying solid businesses that make a lot of money today and will make a lot of money tomorrow, and hanging on to his investments for a long time to better maximize profit potential.

The strategy works. You don't become the richest person in America during your career with a lousy investment game plan. (Buffett, with a net worth of $58.5 billion, is currently ranked No. 2 behind Microsoft founder Bill Gates, who's worth $72 billion, according to Forbes magazine.)

"Doing reasonably well investing in stocks," Buffett says, "is very, very easy."

Here's how he says investors should play the investing game:

"Buy an index fund, preferably over time, so you end up owing good businesses at a reasonable average price," says Buffett. "And that is all you have to do."

That's it? It's that simple? Buffett says yes.

"You don't need to look at the prices of the stocks you own from week-to-week, or month-to-month, or even year-to-year," says Buffett. "If you own a cross-section of American businesses, and you don't get excited (and buy) just at the very top, and if you buy in over time, you are going to do well."