5 COMMON MISTAKES NEW INVESTORS MAKE AND HOW TO AVIOD THESE MISTAKES ?
Year 2020 & 2021, Due to free times of lockdowns, many people entered in the stock market. Lockdowns leads people to come in share market and invest their money. So, there are a lot of new investors in stock market right now. Most of the investors in the market haven’t understand the psychology of investing and are making mistakes over mistakes. Don’t worry, I’m going to point out 5 common mistakes investors are doing and also give you tips on how to avoid these mistakes.
let me point out these 5 common mistakes investors are doing and we’ll discuss about it later briefly.
1)Selling on the first dip.
2)They let their ‘Emotions rule’.
3)Only buying hype stocks.
4)Failing to diversify.
5)Not reading investing books and financial statements.
Now, it’s time to explain each mistakes and the ways to avoid doing this in your stock market journey.
so the first mistakes every investors are doing is,
1)Selling on the first dip
The stock market wouldn’t be a stock market if it didn’t have it’s ups and downs. It will fluctuate. The basic character of any stock is, it rises and falls. It’s a common thing. As an investor, we have to acknowledge this ultimate principle . But, the new investors in the market don’t understand this. They lack patience and worry too much and they do sell their shares on it’s first dip, this will be their huge mistake. Investing is the skill but the time is it’s secret. If you don’ give time in the investing world, you wouldn’t make money. You’ll lose money if you sell on the first dip. Every stock that does down will eventually bounce back after certain times. Don’t sell on first dip, give your time & make huge returns.
2)Letting their Emotions Rule
There is a popular sayings in the world of finance and investing “ Leave your emotions at home when deciding your money plans and investments decisions.” The man who cannot control his emotions will ultimately controlled by his emotions and that man won’t be successful in any sector of life- not only in the world of finance and investing. The new investors in the market heavily trust on financial news & make their investment decisions on their emotions. Instead of rumors, we need to do our own research, like fundamental & technical analysis, candlestick chart analysis, MACD, and other analysis by our own and make investment decisions based on our studies. Instead of let our emotions rule, we must make our emotions slave while making investments decisions. MASTER THE EMOTIONS GAME.
3)Only buying hype stocks
Now a days, we love to follow trends and wanna prove ourselves trendy. This thing also make huge impact on the field of investing. Most of the new investors wanna buy some of the stocks that are hyped at that time regardless of the potential fundamentals of the stocks on the future. I don’t mean that all hyped are bad, what I wanna say is almost all the hyped stocks are already overvalued. As of investment rule we need to look at the intrinsic value of the stocks and try to buy this stock within fair margin of safety. So, as a new investors, you need to avoid hyped stocks and search those stocks which are undervalued, that will allow you to buy those undervalued stocks within ‘margin of Safety’.
4)Failing to diversify
Do you know why mutual funds can give you profits almost every time no matter how less or more ? The secret of Mutual Funds is Diversification. Diversification is simply like putting your eggs in different baskets regardless of in one basket. If you put your eggs in various baskets, damaging of one baskets won’t make huge damage in your life but what if you put all your eggs in one basket and it drops ?
If you’re a beginner in the stock market, simply try to diversify. Diversification is important because it helps you balance risky asset against more stable options. It enables you to build a portfolio whose risk is smaller than than combined risk of individual stocks. That’s why most of the stock genius advices new investors to being their journey by investing through mutual funds.
5)Not reading investing books and financial statements
To be successful in life, we must learn from other’s mistakes. Life is too short to make mistakes by yourself and learn from these mistakes. Most of the beginners in stock markets, especially nowadays, hear from someone about stocks and start investing their life incomes, that’s not okay. They don’t have knowledge on how market works, they just invest blindly. But, reading investing books can help them a lot. The Author spends 2/3 years of life to write a book based on their 2/3 decades of experiences and include these knowledges in a single volume. So, is their any excuses to not reading these books ? Learning from experienced investors can help you make your own investments plans. So, here are some best books to read related to investing and finance.
The intelligent investor by Benjamin Graham
Common stocks and uncommon profits by Philip A. Fischer
Security Analysis by Benjamin Graham & David Dodd
Rich Dad Poor Dad by Robert T. Kiyosaki
How to make money on stocks by William J. O’Neil
One up on wall street by Peter Lynch
The Dhando Investor by mohnish Pabrai
The little book on common sense investing by John Bogle
The snowball by Alice Schroedgar
A Random walk down wall street by Burton G. Malkiel
The psychology of money by Morgan Housell
I believe that these books gonna make you wiser in the field of investing and help you make better investments decisions.
And here comes another mistakes investors are making- Not reading Financial statements. Do you know that the Greatest investor of all times- Warren Buffett- reads around 500 pages of financial statements in a day ? Yes, he reads financial statements of the companies and decides whether to invest or not. The habit of reading financial statements make Warren, the greatest investors of all times. So, if you want to make safe investments, you need to learn about companies first through their financial statements. Do question yourself Will this company sustain for coming 2/3 decades ? And make your long term investments decisions. To invest securely first you have to learn a lot and a lot. You May have heard First LEARN, then REMOVE ‘L’. Don’t underestimate the power of learning.
Avoid these 5 mistakes while investing. Investing is not a hard science What you need to do is , master emotions, read books, make own investment strategy, persistence towards investing and learn about companies you’re going to invest. If you lose even 1 penny in Stock market, it isn’t okay. Never lose your money. Do apply these advices written in this post. Understand the psychology of investing and don’t go with sheep herd.
make your own investment strategy and keep investing !