9 Common Mistakes To Avoid While Investing
Trading and investing in the stock market seems fun, quick money-making business. However, that is not necessarily true for all the investors. Thousands of investors, especially beginners, often suffer huge losses in the stock market losing their life savings. However, they are often not following good practices while trading or investing. Here are 9 common mistakes investors or trader must avoid in order to successfully gain from the stock market:
Most of the time, people start investing in the stock market to gain quick returns. People tend to follow the ‘buy low, sell high’ strategy, without considering the overall effect on their cash flows. They just want returns! They are fine with 1 rupee return to 100000 rupees returns. And hence, they always chase for returns. Well, looking for returns in itself is not a bad habit. However, not strategizing on the returns becomes a problem. This set of investors get so involved in gaining short term returns that they lose out on comparatively longer-term larger returns that the market provides.
Not diversifying enough
This is usually observed among the beginners. As the saying goes ‘do not put all eggs in one basket’, an investor or even a trader must never put all his/her money into only one stock or only one sector. Diversification is one of the best ways to mitigate risk of loss. No matter how rigorously one has researched about a stock, the position taken is always an anticipation of the price in the future. It is uncertain. Risk is always associated with uncertainty. And diversification comes to the rescue. Who knew about the coronavirus? In any form of disruption, that is happening quite often than before, it takes no time for a sector to get wiped off. In such times, diversification helps to balance out the loss.
Imitating investment styles
The most common practice observed among investors and traders is that they imitate other, renowned personality’s investment styles. While adopting an approach may not be completely wrong, not customizing it to your needs is wrong. Every individual has a unique investment style based on his/her level of income, risk appetite, psychology, savings, responsibilities, etc. Hence, one person’s investment style may not cater to the needs and wants of another. Hence, blinding imitating investment styles do not work for many. These individuals face losses and then blame the market for being a gambling game instead of an investment avenue.
Depending on tips
In the fear of losing out opportunities or incurring huge losses, numerous individuals rely on other people’s tips regarding what to buy and what to sell without doing their part of research and analysis. We need to understand that the market positions are all anticipations and hence, nobody’s anticipation comes without uncertainty. Hence, blindly trusting others’ tips is not going to always be fruitful. In fact, a tip may reach you later during the day and you would have already missed out on the opportunity. Discussing and seeking opinions is not harmful, depending blindly on what others are saying is harmful.
Not planning enough
Any investment is a planned activity. No investment can be successful without adequate planning and this applies to stock trading as well. One needs to plan on the total investment, the end goal, the returns expectation, risk appetite, etc. before investing in the market. Unplanned trading can lead to huge losses enough to take away your life savings.
As soon as a trader or investor starts earning profits, he/she usually tends to either reduce or completely stop learning. And this is usually a psychological pattern, when you have learnt and worked so hard and you finally see the positive result, you tend to look at yourself differently, an ego starts surfacing. While this may be common, it is extremely harmful. It is increasingly important to constantly keep learning for your brain to keep functioning rationally and not make avoidable mistakes. With the changing dynamics of the market and the economy, it is also important to adapt to the change to stay relevant and grab maximum opportunities.
No clear investment goals
No clear investment goals lead to a lot of confusion when trading in the market. This confusion blocks your mind and you may not be able to perform well. Every individual must have a distinct goal in mind while investing. The goal clarifies the purpose of investing and makes the activity much easier.
While trading in the stock market may seem very cool, it is not! It is a time-consuming job requiring efforts, dedication, and consistency. Laziness and careless attitude towards trading lead to losses for many investors. Constant monitoring of the positions is a must in order to avoid any avoidable losses.
Getting too emotional
There are people who say market works on emotions. Well, that does not mean you have to become emotional while investing. Emotions lead to hasty decisions like buying at a high price due to a single day rally. Or selling off to make losses due to a temporary retracement. Keeping emotions away from investing is the best you can do for yourself. Rational thinking helps analyze better and rationality comes when emotions are controlled.
Avoiding these common mistakes is a must for becoming a successful trader or investor. Focus on your goals, keep learning, diversify your portfolio, study and monitor yourself, and invest rationally!