Common mistakes made by beginner investors
For someone starting out with investing in the stock market, it
is not uncommon to make mistakes, but when dealing with money, mistakes with investing can
have serious consequences. However, the good news is that if you start early,
you will generally have more timeframe and flexibility to take on risks and recover the
losses you have made. It is important that a beginner investor understand the
common mistakes made by many and learn how to avoid them to increase the chances of
success while investing in the share market.
Key points to remember:
- If you are convinced about a good investment idea after
doing your research, you should immediately act on it. Markets move quickly and if you
contemplate too long, you put yourself in a riskier territory
- Missing out on a good idea can lead investors to two very bad scenarios. If
the investment you thought was good is going upwards, you will jump into it at a
higher price level as you do not want to miss out on the opportunity anymore. This may
result in buying something at a price which is no longer rational, and the
returns may be not as expected initially. Otherwise, you may come up with your own
rationalisation without thorough research and end up buying shares of similar companies
which may not be as promising as your original investment option
- Do not speculate. Speculating is equivalent to gambling and instead of speculating
and gambling, an investor should look to invest in companies that suits
their risk profile. Beginner investors should consider building a portfolio of
small to medium cap stocks which have higher growth potential. The biggest risk from
speculation is that it may lead to such a big loss that it will put you off from investing
for a long period of time.
- Another mistake that beginner investors make is taking on debt to invest in
the stock market. It is not advisable that you use debt leverage to invest. Always keep
aside some savings and then use a portion of your disposable income to invest in assets
that you prefer
- One of the most important factors in forming investment decisions is asking yourself “why”.
If an asset is trading at half of an investor’s perceived value, there is a reason, and
it is the investor’s responsibility to find it. That is why research is important
before investing in anything.