Common Investing Mistakes: Many people tell you how to invest in the stock market, what to do in the stock market. But very few experienced people will tell you what should you avoid in the stock market. So in this article, we are going to discuss common investing mistakes that every beginner should avoid.
In this pandemic Covid-19, many people lose their job. May students pass out from college, but they still do not get a job. Many business person stops their business and sits at home.
Now in that situation everyone looking for alternate work and jobs. May people seem that the stock market is very easy, so many people are making huge profits by just trading and investing at home. They might hear people are making lakhs of profit in a day.
So these people also start trading and investing. I am not saying it is wrong but some people are misleading, some people are doing mistakes. Some people blindly following the wrong person on Youtube, TV, or any blog website. To overcome this problem I come here with a solution to what mistakes should you avoid while investing and trading in the stock market. Initially, I also do some mistakes, everyone does mistakes at the beginning. You need to correct them all. With my experience, I can tell you how to avoid them.
Common Investing Mistakes
1. Investing Without knowledge
You all know that the more you learn more you earn. When I started investing at that time I don’t have more capital to invest. That was a plus point for me Initially I started with a small amount. So my losses were also small. At that time I focus on learning not on earning. I learn how to do fundamental analysis, I start to read Investing books. Here is the list of my top favorite books.
Some people start their investing journey without taking sufficient knowledge of investing and start losing their money. And start blaming the stock market. They say the stock market is gambling, scam, and exit from the market very quickly.
You have to keep patience here. You can not become a millionaire in a single day. To take any decent job you have to wait until your graduation. And here people want to make wealth overnight that is not true.
First, you have to understand the market. How it works, what is the process for stock selection? First, you have to manage risk then you have to make an investing plan. After that all you have to start investing with low capital initially.
You may hear that 90% of people in the stock market lose money while only 10% of people make money from that. 10% people are people who have proper knowledge of the market have good experience in the market while 90% people give their money to 10% of people.
2. Not Diversifying their Portfolio
Diversification is a more important aspect of investing. You can not keep all eggs in one basket. It means that it is a bad idea to invest all money in a single asset.
Many people at the beginning keep invest their all money in single stock. Either very great stock you have if market crash your all return can be turn negative.
So it is a good idea to diversify your portfolio and minimize your risk. If you are unable to build your portfolio initially then you can invest your money in good diversified Exchange-traded funds (ETFs) or mutual funds.
3. Don’t stick to any particular company
If you bought any stock for investment then you fall in love with that company. You don’t dare to sell it either it will start giving you negative returns. You forget that you buy this company for investment purposes you forget that you buy this stock for a profit.
Never stick to any company if it starts to give you negative returns. If your fundamental analysis suggests you sell this stock then sell it for sure.
4. Don’t invest when market is down
People don’t dare to invest when the market is crashed or down. They might think that the market will crash more and they start losing their money. This is not true you all know that market is cyclic. Market not remaining down for long period. Market correct itself.
When the Covid pandemic starts market starts continuously falling. So many people start withdrawing their investments that were a big mistake at that time. Some intelligent investors start acquiring more shares that time and today they are happy. They are making more profit on their investments. Don’t invest when the market is down is Common Investing Mistakes that Every Beginner should Avoid
5. Invest more in Penny Stocks
When any person starts their investing journey then they are more attracted towards penny stocks. They think that if I buy stock of less price then I can buy more quantity.
Understand this with example suppose XYZ company current price is 1 Rs. If I buy 10000 quantities then I require 10000 Rs. If the price of that XYZ company goes to 10 Rs then I can make 90000 Rs profit. How to assume it is. But this is practically not possible or possible in rare cases.
I am not saying penny stocks are bad. I am saying that if you have complete knowledge of that stock fundamentally or technically, you are confident in this type of stock then you can buy it. This type of stock has limited information on the internet or other sources. They are difficult to analyze.
But you still want to invest in this type of stock then you can allocate a small percentage for them. I mostly recommend you to invest in Blue chip stocks initially.
6. Not consider Impact of Inflation
The most common mistake investors do that they ignore the impact of inflation on their investment. We all know that inflation is evil for our money. Inflation eats the value of today’s money in the future. What is is the value of money today is not the same in the future.
So how can we tackle this situation? Invest in assets that give more returns than the inflation rate. So many people do that they keep their money in a saving account or invest in FD that will not help you to beat inflation. So invest tour money with proper planning.
If you are in your 20s then where to invest? I answer it here.
7. Following the Crowd
So many people are searching for tips in the market. With that tip you not going to become successful in investing. Some people see recommendations on TV and follow them and start losing their money.
In this market, you have to take your own decision. What works for others is not going to work for you. You have to create your own strategy. You have started your own analysis. if you want a decent amount of return from the market.
8. Not using Stop loss
Most people don’t any proper planning when to exit from a particular stock. If they buy any stock they stay invested even if they getting negative returns on them. If your fundamental analysis does not meet your expectation then you can exit from that stock. You don’t need to get emotionally attached to that stock.
That’s are Common Investing Mistakes every investor should avoid. That’s for now.
Common Investing Mistakes FAQ
With how much money I can start stock market investment?
It’s up to you you can start with any amount you want. It may be 10000 Rs, 5000 Rs or even as low as 100 Rs.
Should I invest in penny stock?
According to my point of view, It is no a good idea to invest in a penny stock. Penny stocks are low price high-risk public companies.
Invest only when you completely aware of this type of stock. If you have good experience in the market. If you able to properly analyze penny stocks
This type of stock does not have the proper information on the internet or other sources. They are difficult to analyze so it is important to stay away from penny stocks.
Penny stocks have a very high potential for fraud and loss.
How can I diversify my portfolio?
You can diversify your portfolio by investing your capital in different stocks. You can invest your money in different segments. You can invest your money in index funds, mutual funds debt funds. You can invest in gold. You diversify your money in real states. You can keep your money in a saving account.
Can I use stock market for my active income source?
According to my point of view, the right way of earning from the stock market is investing. It is not a good idea to sit all day in front of the system and trade. The stock market can be used as a passive income source. If it is that much easy to make money by trading, then every person sits at home and only trades, but that is not possible. For that, you need so much practice in trading and deep knowledge.
It is good to invest when market is down?
The simple answer is Yes. If the market falls then you can buy good stocks at a low price. If you see historical data then you can understand that whenever the stock market falls it rebound with the same potential. Hence it is a good idea to buy stocks when the market falls.