Investing 101: Top 3 Mistakes Investors Make In Stock Markets

Be the First to Comment Read

Investing 101: Top 3 Mistakes Investors Make In Stock Markets

 Investing 101: Top 3 Mistakes Investors Make In Stock Markets

Summary

  • Investment 101 first rule # Don’t put all the eggs in a single stock. Diversify!
  • Rule 2 # Don't get attached to the stock of a company and ignore the red flags.
  • Rule 3 # Don’t freak out and sell your stocks when the market drops! Also, do not fly with the market euphoria and hold doomed stocks.

 

Perfect investment is pretty much a utopian term. It doesn’t exist. Every stock has its return and risk factors. Experience is the best way to gauge the investments and avoid trotting on the path of errors. That being said, ignorance is no excuse for an investor. Returns of a portfolio in most market environments are built by both experience and market knowledge. So, while you conduct the market research and due diligence, we present a list of top three mistakes that every investor should be wary of:

 

1. Putting All The Investment Eggs in One Basket

 

A big no! Investors should not put all their funds or allocate a high percentage of their portfolio into the stock of a single company. You never know, how the winds of the markets blow in the future.

Diversify! Reduce your risks.

Invest in a variety of assets from a range of sectors. From stocks and bonds to Exchange-traded funds (ETFs) and real-estate, diversify into various companies from different industries such as gold, technology, healthcare, consumers and so on. 

It is also pertinent to diversify into stocks of different companies from a single sector, especially if you’ve allocated a higher percentage of your investment in that particular sector.

 

2. Oscillating With Market Moods

 

This is one of the most common mistakes investors make while trying to emulate a successful portfolio. You hear or read about a stock investor’s story, google it and follow the path to gain handsome returns or cut down on your losses.

Don’t freak out and sell your stocks when the market drops! At the same time, do not get swept up in the current market euphoria without due diligence.

No matter what the news says, or fellow traders’ advice, each investors’ portfolio and objectives are different with different risk appetites. The trader, who is cutting their losses by selling the stock, most likely entered at a different point of time. Similarly, the hot stock, for which the market swooning over, is probably very expensive at the moment.

So, instead of following speculatory news, understand the best holding period for the stocks you own and decide accordingly.

@Kalkine Image

 

3. Don’t Fall In Love With A Stock

 

Do not get emotionally invested in a company and fall prey to ‘anchoring biases’.

While the ideal fundamental for every investor is to ‘buy right’ and ‘hold forever’, being too attached to a particular stock may fog your vision.

Are the fundamentals of the company changing with the changing times? Are these changes for the good or mere compromises?

Ignoring the red flags can lead to investors owning stocks of doomed firms.

There’s a saying in the markets: Traders spend a lot more researching stocks to buy, than analyzing when to sell.

Just like bulls and bears are a part of the market, stocks too are prone to periods of growth and depression. Stock movements, much like the weather seasons, are cyclical, and it is difficult to predict its fate.

At the end of the day, stock markets are riddled with uncertainty that swings with the political and macro- and micro-economic factors. There’s no golden formula to escape the big pitfalls. But little experience and playing safe may help one escape from stocks completely zeroing out.

 

Disclaimer

Speak your Mind

Featured Articles