Mistakes To Avoid In The Stock Market
For the uninitiated, the stock market looks either a rosy picture or the dooms day scenario. Actually it is a mixture of both. By investing wisely, you can get the money of life time or if you are not careful, you may lose money of life time.
Don’t follow the herd mentality. This is one of the top mistakes to avoid. The herd mentality is THE reason why many investors lose their money. Actually when your neighbor or friend is buying, since everyone is buying, stop and think for one moment “is this share worth its money today and does it have a growth potential?” If the answer is a YES after study of the share, go ahead and buy that share. If you have a slightest doubt, refrain from buying. Do not buy just because someone else is buying.
Not deciding your time line: When you start investing in stocks, you have to decide your time line or profit margins when you are going to quit. If you do not do that you may pass on the period of greatest value for your stock. Thinking that your stock will go up when it has reached its present peak, is a sure way of losing your money. Of course it is not possible to sell your stock at peak very time, but if you have decided the limits, you will not be sorry.
Not cutting down losses: For every stock, there is a range and depending on the general market conditions and fundamentals of the company you can decide the price of the stock you hold. If either of the above two conditions compel a stock to go down, have predetermined limits when you are going to sell irrespective of market conditions. This will cut down the losses you may have in future.
Taking too much risk: If you are a reckless investor, you will have blame yourself for taking too much risk. A calculated risk is what one is expected to take in stock markets. Taking too much risk based on hear say from the market, is a sure way for doom.
Failing to take risk: The main motto in stocks is high risk, high gain. While too high risks are to be avoided, not taking enough risk can contribute to reducing your profits. If you are the type of person who wishes to avoid risks at all costs, stock market is not the place for you. You may invest through mutual funds, who will take calculated risks without your knowing it.
Investing on basis of tips: You get a sure fire tip from your friend, who has got it from another friend, who has got it from a broker. If you invest on the basis of this tip, you will probably get the shock of your life when the stock that you bought goes down instead of going up. Investing on the basis of tips is generally a sure way of losing your money, avoid it at all costs. You may bet on a horse race instead
Selling before the stock has peaked: This is a mistake you may rue for a long time even if you have made a handsome profit. The loss of profit is not a loss in the true sense of word. It is a loss of future profit. Determine and raise your stop loss limits every time your stock goes up and when the stock peaks up and then starts going down, sell at the stop loss limit
Failing to diversify: If you depend on one company to give you all the profits in share market, you will perhaps get no profit at all. So spread your investment in stocks to many companies rather than keeping it to one or two companies. The profit you get in this way may not be the maximum, but you will at least make sure that you do not lose.
Losing peace of mind over your investment: You are saving for your future. If you are not there, then what is the future for you? Do not lose your peace of mind over stock market unless the markets go into a tailspin. Markets do go into a tailspin many times; your worrying about markets is not going to take them out of that condition. At that time as they say “let the sleeping dogs lie” You will recover your investment when the markets go up once again.
Depending too much on stock market alone: Spread your investment taking in account your risk taking capability. When you are young, you have a greater risk capability, it is not so when you are old and about to retire. Therefore plan your investment and use a mix of stock options, real estate, mutual funds and certificate of deposits and bonds. This will ensure that when you lose in one, you get compensated by increase in other and more importantly, you do not loose your peace of mind.