Stock market investment and profits sound very interesting to the beginners that always wanted to get into investment and earn profits out of it. The one thing that many novice investors overlook is the value of research, perseverance, and holding your stocks for a substantial duration. They tend to make certain typical mistakes that later take a toll on them. Yes, it’s very easy for a beginner investor to make mistakes out of excitement, emotions, or even ignorance. But avoiding them beforehand is what they should do as those mistakes can be costly and cause major loss.
In this article, we will cover those common mistakes in stock trading that the novice investors often tend to do and how to avoid them easily.
What are some common stock investment mistakes to avoid as a beginner?
You hear that your friend is earning great profits after becoming an investor and immediately made up your mind to start investing. Maybe that friend doesn’t even know about the market and the profit he earned was mere luck. In short, you should keep certain things in mind and make sure you have checked off those things on your list before proceeding with any sort of investment. Below given are some of the major mistakes that can be avoided easily as the more you know about investing, the more you can make out of it.
Trading based on intuition
The share market investment depends solely on facts and past performance, and if you buy stocks just because you ‘have a feeling’ that they are likely to go up in value. This becomes prominent when it comes to day trading (buying and selling financial instruments on the same trading day) where you often lose a huge amount of money. One very important thing to note down is first and foremost, one should necessarily avoid intraday trading mistakes.
All the successful day traders work rigorously to achieve the expected outcomes from stocks they are investing in.
Investing like a trader
Stock Trading and investing are two different terms with the fine line dividing it. This basic difference in trading and investing is that an investor must keep a long term perspective. If you enter the market just to make quick gains within a few months, you may be disappointed in the end.
When it comes to the equity market, there is no such thing as quick gain, and profits take a long time to grow and accumulate. An equity investor always should always remember to provide their investment at least a time horizon of 5 years to mature and start giving results, because any time less than that is considered too early to predict the growth of a business.
Until a company blooms, the share price won’t grow and hence there won’t be any profits from your investments; that’s how it works! How will it affect you? Your portfolio looks bad as you will have to sell and exit in haste without giving your investments sufficient time to grow, thus making you lose money at the same time.
Investing based on recommendations
This is perhaps the biggest mistake that should be avoided at all costs. Often it is seen that the novice investors turn to their friend circle to seek advice on important matters in life. Finance is no longer an exception; when it comes to stock investing, counting on the advice of your friends and simply buying stocks that they bought doesn’t seem to be a good idea Stock market India is not a clothes shop where one can simply buy based on some recommendation from their beginner friends or relatives.
This never works because everyone has different financial goals and objectives and should always invest after aligning with them so what has worked for your friend may not work for you. What to do in this case? Do your homework, gather as much information as you can but make sure that you conduct your own due diligence about the company and should be convinced thoroughly before investing. Invest only when you feel that your objectives align with that of the company and there is a strong scope that it will grow in the future.
Not Diversifying your portfolio
Another common mistake that investors tend to make is investing most of their capital in buying stocks of only one kind or of a single company and then facing a loss when the portfolio goes down.
Even the publicly declared portfolio of successful stock investors like Rakesh Jhunjhunwala has stocks across industries and businesses. The most important thing to note here is diversification not only spreads out your risk but makes sure if some stocks are going down, others gain and balance your loss, so your portfolio remains balanced.
Investing too much
Money management is the top skill you need if you are thinking to become a successful investor. If you lack money management skills then how will you manage your investments and portfolio, putting too much money at the starting of your investment journey will burn a big hole in your pocket especially if that investment fails to work. Even if you have researched well, you might end up making some mistakes at the starting of the stock market investment. To avoid this, always start at a slow pace and divide your investments in smaller chunks.
On a closing note
Summing it up, mistakes made during investment not only cost you money but also make you feel defeated. Avoiding some obvious pitfalls while entering the stock market is the best way to keep your confidence boosted. Always keep a long-term perspective while investing and do conduct due diligence when shortlisting any company.