- Investment in the stock market is like a marathon, not a sprint.
- There are no fixed rules to success in the stock market.
- The year 2020 was remarkable in many senses, as stocks and commodities hit new lows, while gold and silver prices scale all-time highs.
Humans tend to make mistakes. They are a part of the learning process. But when it comes to mistakes made in investment decisions, even a small error can cost one his entire life savings.
We will try to put an inclusive list of common mistakes that investors often make in share market. People should avoid those mistakes to reap the benefits of investment.
Image Source - ©Kalkine Group 2020
- Falling in love
Investors often fall in love with a particular company, business model or a brand. As it happens in any love story, people tend to see the bright side only. They ignore the warning signals or negative news related to the sector or the company. And when the time comes, without having any proper exit plan, their portfolios take a deep plunge.
- Running Sprint in Marathon
Most of the people are traders in the market rather than investors. So as traders do, they buy in uptrend try to sell with some significant gain. But as soon as any macroeconomic news related to the market is announced, they are the first to do the panic sell.
Investors should first keep their goal intact - what they want to do with their investment. They would like to watch it become a “multibagger” or exit with 15-20% profit in the short term.
There is no specific rule to the game other than -- the basics should be taken care of, such as one should not invest in a risky business or a company without a proper background research.
Investment in blue-chip companies involves less risk and has limited upside potential over the share price and dividends. Mid-cap companies involve little more risk than the blue-chips, but their movement is swift and can give higher returns in a shorter period of time.
Sectors like FMCG, food and beverages, tobacco and alcohol products are some examples of the marathon shares. The longer you stay, the higher the returns.
Image Source - ©Kalkine Group 2020
- Buy at the bottom; sell on peak
It only sounds so simple, but no one can claim that they have been able to do this with 100% success. Even the analysts and market pundits, who work 24X7 for the market, cannot predict the exact fall and gain of the market. Investors try to time the market. The logic which runs in their minds is if a share is moving in uptrend and has risen significantly, then they should wait for it to fall before it’s bought. It’s like the uptrend stock will reverse only, so that the investors who had missed the bus earlier would catch it now. This never happens!
So, a simple suggestion would be not to predict the next fall or peak of a share. If the company is doing well, the sector is booming, and no macroeconomics factors come in to play for directing it to the negative side, then the share may touch new highs. It may fall a little in the upward journey, but it should not trigger any panic buttons.
The companies involved in EVs, manufacturing battery for EVs, or mining of the commodities used in the making of the batteries, are such examples in the current scenario. The market of EVs is foreseen to grow with a rapid speed and has a bright future.
Market fell sharply during the initial phase of the pandemic (Image Source - ©Kalkine Group 2020)
Good Information: Which metals & mining stocks made investors strike gold in 2020?
Almost everyone knows that doing research prior to an investment is essential. So we are not elaborating on this point. But we would like to discuss another aspect of research -- are we doing it correctly?
(Image Source - ©Kalkine Group 2020)
Here we can take professional (paid or unpaid) help and learn the art or science (whatever it may be called) of analysing the stocks or companies’ performances. Once learned and tried, it will help you in the long run.
There are many stock analysts, most of them are self-proclaimed, available on popular online platforms. However, one should not take their advice seriously and make investment decisions according to them. Do you own research because it’s only you who can decide the risk appetite and how much profit is enough along with other related factors.
- No Diversification
As always repeatedly said and adviced that diversification is important. Still, some people get hooked to one particular sector or a specific type of investment. Try to include all major sectors and fix a limit of investment in each of them.
At the end we would like to say, no one is perfect but at least try not to make blunders in the stock market, as it is your own hard-earned money. Do not let it go easily in someone else’s pocket.