When it comes to the stock market, nobody is perfect. Anyone can make mistakes. But that doesn’t mean you make the same mistakes as the others did before you. Wouldn’t it be great if you got a cheat-sheet that helps you avoid some of the common mistakes?
Well, this is a cheat-sheet that can give you a leg-up over the others.
1) Lack of knowledge
Many investors commit mistakes in the stock market simply because they do not have the required know-how. They directly start trading or investing without any prior knowledge. It is important to be aware of some of the fundamentals in the market before putting your money in stocks. Comparing and contrasting different stocks in a sector, reading the financials of a stock and identifying patterns are some of the important aspects on which you should have a firm grasp.
2) Investing without a plan
As an investor, there may be many things you want to achieve.
a) Building a home for your family
b) Sending your children to the best schools and colleges
c) Taking your family on an exotic vacation
d) Earning a regular income
You may invest your money in order to achieve these different goals. But what if two goals clashed? You may not be able to do justice to both goals at the same time. This happens when you invest without a plan.
In order to achieve all your goals successfully, you need to create a proper financial plan. This way, you can allocate funds to meet specific goals. For example, you can invest in stocks of blue chip companies in order to earn a dividend. This gives you a regular income. You can use another portion to invest in equity mutual funds in order to buy your house in 10 years time. This way, you can achieve your goals one after the other.
3) Timing the market
Market timing is a strategy where investors buy or sell in the market by trying to predict future price movements of stocks. This can be quite risky, especially if you are new to investing. The market timing strategy uses historic price movements to identify future prices.
4) Investing on unsolicited tips
The stock market is filled with people giving tips. Even on TV, newspapers and online, you come across several self-anointed market gurus. You might read headlines such as: “Invest in these 5 stocks to double your money in 6 months.” Such headlines are sure to lure a reader to take a look. But if you act on these tips, it may be the fastest way to part with your hard-earned money. Beware of such tips. Don’t invest based on these suggestions without doing your own personal analysis. After your research, if it still sounds like a good idea, you can invest in the stock.
5) Ignoring portfolio review
Buying stocks is not the final investment step. You need to monitor your portfolio and review it on a regular basis. Many people ignore this step. If the funds in your portfolio don’t work as per your expectations you should change them. In addition, your goals may change as you grow older. For example, after you become a parent, you may have to incorporate your child’s needs into the financial plan. It is important to incorporate these goals in a timely manner.
There could be any number of mistakes an investor makes in the market. But by avoiding some of the basic ones, you can gain investment experience a lot faster. Avoid the above mistakes to ensure better performance in the stock market.
Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.