Whenever we start to make investing the first question that comes to our mind is how can I make a lot of money from a small amount of money. But if I talk about data in reality, then 80 out of 100 set out to make money and in the process lose even what they had earlier. I am not saying that trying to make money, or knowing how to is wrong. But more important thing is to preserve whatever we have cash. How do we save ourselves from losses?
Today we will discuss the five most common mistakes that a lot of retail investors like you and me make in the stock market and lose money. I will also tell you how to avoid this mistake in future.
Five most common mistakes that a lot of retail investors do
1. Avoid investing money based on someones’s tip
Hello, yes, buy? Are you sure? Will it go up? Buy. You could have made this mistake like me before? taking someone’s advice you have bought shares which you knew nothing about it. You didn’t even know what that company did before, or what the business was like and future prospects. I alone didn’t make this mistake. Many other retail investors like us have done this before. They people either get tips on the phone or from friends or from some random message through different agencies. Do not make this mistake in life.
Avoid investing your money based on someone’s tip you got. Friends, it is your money. Do take help from someone for research. But do your own research too. After research, be convinced that the share is good, and the company is good to invest. Only then buy it. What I did just know, you must have done too before.
2. Searching portfolios of big investors
When we think about investing, and we don’t know where we should invest, it is very common practice to search for portfolios of big investors on the internet. Then choose a good share from that portfolio of the big investor, and invest in it without thinking for it.
This is the second biggest mistake that retail investors like us make during investing. Without thinking about it, choose a stock from someone’s portfolio and invest in it. Now you must be thinking if a large investor has invested, what if I invest? There are three reasons why this is an error.
First: Entry point Level: Whenever you invest in a company it is important that we know at what level we should invest in that company and what price we should exist. If a company’s share is 100, then maybe we should invest there when the price is 60. Because its value could be Rs 60. Looking at the portfolio of a large investor, we fail to understand at what price that investor bought. They may have bought it at 20 and the price has become 100. If you buy it at 100, you will incur losses when it goes down.
Second reason: public information. If there is a part in your portfolio that you can see, without any research or knowledge, anyone can do it. So you are not doing anything different. If everyone can see it, the price may already be high. Then you won’t get any profit. The third important point is that when a large investor invests, we do not realize it until he owns more than a percentage of the shares of a company. When someone’s stake in a company becomes more than a percentage, it must be made public.
There may be a number of stocks in your portfolio that you won’t get to know about. And you will make a different portfolio based on media information. Friends, there was a company called ABC and Their share price was 100 rupees. A few months ago, I bought your shares for 100 rupees. The company struggled, negative news emerged, and the stock price fell. So I bought more. Then it went even lower and I bought a lot more. I kept buying and its price dropped to 1 rupee.
I cannot sell the shares because I will not make any profit from them. I made a big mistake buying more shares. Again, I just didn’t make this mistake. Investors like us make this type of mistake every day. So now you must ask yourself what the mistake was. So folks, the mistake was that every time we invest, retail investors get excited. We become possessive of the company.
When we hear something negative about it, we expect it to be in the short term that it will rise again. When the company goes down more, we buy more.
3. Never get emotionally attached to a company
Friends, always remember this investment rule. Never get emotionally attached to a company. You are here to earn money. You will earn money only when you invest in a good company. If the company is failing, it is important to exit at the right time. As important as the entrance is, leaving at the right time is also important if there is bad news from the company. In investing, it is very important that whenever you invest, you have a stop loss. If the stock price falls below that exit at the right time.
4. diversification of investment
When we go on tour and we have a lot of money on our hands, what do we do? We divide the cash between family members so that if part of it is stolen, we have the rest to cover expenses. Friends, why don’t we use this concept also in investments? Why don’t we diversify our investments?
Whenever we invest, we make a large investment in one place and if it goes down, we incur a large loss. So whenever you invest, take advantage of diversification. Because diversification is important as risk and discipline in stock market. When we open a portfolio of a large investor, by making that mistake we are talking about, we come to see that they have at least ten or twelve different stocks. Because they diversify their portfolio to reduce risk for thier investment. So why don’t investors like us use it? So when investing, be careful to diversify your stocks.
5. speculation and investment
Fifth and a very important mistake that we all make perhaps I also made when I started investing was the difference between speculation and investment. When we first start investing, we think we can double our money in no time. But you must understand that if you want to make good investments and benefit from them, you must give it time. It should have the horizon to grow. If you are an equity investor, remember, give your investment at least five years.
Because a duration less than that is not enough for companies to grow, until a company grows and expands, its share price will not increase, then there will be no return on your investment. What will be the result? His portfolio will go down, sell and go out and he will always say that the stock market is a gamble.
if the money you investing is yours, risk is your’s then the decision should also be yours for your money. So whether you have to invest or not, the final decision should be yours here. So here are the five common mistakes in investment. that we all make sometimes. You can comment to let us know which of these mistakes you made while investing in stock market. If we missed talking about something do add in the comments so our Readers can benefit.