Jasmine Birtles
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The Biggest Lie in Investing That’s Costing You Money
Ruby Layram
6th Mar 2025
There is a lot of useful advice about investing out there. But, amidst all the good stuff, there are a few common investing lies that cost investors millions o pounds every year! In this post, I wanted to address one of the biggest lies about investing that you’ve probably heard before: If a company is big and popular, it’s a safe investment.
We’ve all heard it before. “Oh, just invest in big, well-known companies. They’re safe!” It’s the classic advice given to new investors, usually by that one uncle who read half a finance book in 1998 and still thinks he’s Warren Buffett. But here’s the truth: just because a company is a household name doesn’t mean it’s a smart investment. In fact, this assumption could be draining your portfolio faster than a dodgy stock tip from TikTok.
Let’s break down why this belief is nonsense and what you should actually be looking for when choosing investments.
Why Size and Popularity Don’t Equal Safety
To understand why this common belief might be costing you money, let’s take a look at why the fancy big companies aren’t always the best options for investors.
1. Big companies can and do fail
Remember Blockbuster? Lehman Brothers? Nokia? At one point, these companies were huge. They dominated their industries. People thought they were invincible. And then… they weren’t.
Size doesn’t protect a company from mismanagement, poor decisions, or changes in consumer behaviour. A giant can fall just as hard as a small business. The only difference is that more people are watching when it happens.
2. Overvaluation (when popularity works against you)
When a company is in the spotlight, everyone wants a piece of it. That drives up share prices, sometimes beyond what the company is actually worth. This is called being “overvalued.” And when a stock is overvalued, it has way more room to fall than to rise.
Take Tesla, for example. There have been times when its stock price shot up not because of solid fundamentals but because everyone was hyped up about Elon Musk. When that hype fades? The stock tanks (just look at the tech-giants recent dismal performance!)
3. Lack of growth potential
The biggest gains in investing don’t come from massive, well-established companies. They come from businesses that are growing rapidly. Apple and Amazon were once small, underestimated companies. Investors who got in early made life-changing returns.
By the time a company is a household name, a lot of that explosive growth is already in the past. You might still make money, but don’t expect the “big and safe” companies to double your investment overnight.
In an ideal world, you should put your money behind a balanced mix of big ‘safe’ companies and new higher-risk companies that have a little more room for growth. Then, you get the best of both worlds!
How to Avoid This Mistake and Invest Smarter
So, if big-name stocks aren’t always a safe bet, what should you be doing instead?
1. Look at fundamentals, not just fame
Before buying a stock, ask yourself: Is this company actually profitable? Is it growing? Does it have a competitive advantage?
Look at things like revenue, debt, and profit margins—not just whether it’s a company everyone talks about at dinner parties.
Read our guide on how to invest with fundamental analysis to learn more about the process of determining whether a company is actually worth investing in. It’s important to understand that not all big companies will have solid fundamentals.
2. Consider the industry and future trends
A company might be big today, but will its industry still be relevant in 10 years? Companies like Netflix revolutionised entertainment, but now they’re battling increasing competition. Meanwhile, sectors like AI, green energy, and cybersecurity are seeing rapid growth. Investing in tomorrow’s winners is smarter than holding onto yesterday’s giants.
3. Check the valuation before buying
A great company isn’t always a great stock. Especially if you buy it at the wrong price! Compare its price-to-earnings (P/E) ratio to industry peers. If it’s much higher, you could be paying a premium just because it’s a popular name.
4. Don’t put all your eggs in one basket
If you only invest in big-name stocks, your portfolio could be at risk. Diversify by adding mid-cap and small-cap stocks, ETFs, and even bonds to balance things out.
Final Thoughts
Big, popular companies might feel like the “safe” choice, but that doesn’t mean they’re the best choice.
The real secret to successful investing isn’t following the crowd. It’s doing your own research, spotting opportunities before they become mainstream, and always thinking about value over hype.
So, next time someone tells you to invest in a stock just because it’s a big name, smile, nod, and do your own homework. Your future self (and bank balance) will thank you. Here’s a useful guide on how to research stocks that could help you to get started.
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Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence. When investing your capital is at risk.
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