Author: Monika Zeminová
Date of Publication: 30/08/2022
If you are new to the financial markets this article is for you! Investing in stocks is becoming a more popular way to make money. Every year, thousands of new investors are trying to succeed in the stock markets. Unfortunately, many of them keep repeating the same rookie mistakes. So what are they?
Mistakes you should avoid
1. Buying expensive and selling cheap
Fear and greed often motivate beginning investors. That's why when markets are rising, they buy at high prices for a short-term profit. On the other hand, when the markets fall, they sell cheap because they are scared of sudden losses. However, instead of focusing on short-term market fluctuations, the best thing to do would be to focus on long-term profit.
2. Letting your emotions take over
Ups and downs are a normal part of investing, as the occasional loss of money is. When that happens, it's usually best to do nothing. The stock market can be volatile, but you will probably get back what you lost if you have invested reasonably.
Also, you can invest your money elsewhere and try to make a profit on something else. If you sell your investments every time the value of a stock falls, however, you are unlikely to do well. You should only start considering selling a stock if it hasn’t changed for several years and the management makes ill-advised decisions.
3. Forgetting about inflation
Another mistake you should avoid is thinking your money is safe in your savings at the bank. The opposite is true. If you leave money sitting in these accounts for too long, your money will lose value. And that is because of inflation. You simply buy less with the same money. If you are already investing your money however, don't forget to cut your profits by inflation and fees.
4. Wanting to get rich overnight
When someone offers you an investment in something very profitable in a short period of time, always keep in mind that with high returns comes high risk.
5. Believing that historical profits guarantee future profits
It would be nice, but unfortunately it doesn't work that way. Historical profits can help you determine the riskiness of a product and predict future profits. However, they will never guarantee future performance.
6. Not paying enough attention to the fees
One of the biggest mistakes novice investors make is not paying enough attention to the fees their bank is charging them, or not taking them into account at all. They see high returns, low risk, and easy availability of money until they realize they have to pay a fee to enter and invest their money. If you are a beginner, you should be concerned not only about the return and risk of an investment, but also about the fees charged on that investment by your banking institution.
7. Not diversifying
Never put all your eggs in one basket. It doesn't matter if it's Microsoft stock, Bitcoin, gold or real estate. It's always extremely important to never have all of your funds invested in one product. This is because if anything were to happen to the investment, all your savings are gone. The absence of any diversification is one of the biggest investment mistakes novice investors make.
8. Investing in companies you don't understand
Investing in companies you don't know can be risky, even if the company is a leader in its field. When you don't know how a company makes money, you have a harder time predicting how its decisions will affect the performance of its stock. However, when you understand how a company operates, you can more easily spot red flags that may signal a potential downturn.
9. Trying to time the market
Trying to time the market means trying to buy when the stock is at its lowest point and sell when it is at its highest so that you can make a decent profit. It sounds like a great strategy, but it is almost impossible to know when a stock has reached its highest or lowest price. If you guess wrong, you could lose a lot of money. This can happen especially if you put a substantial amount of your savings into one stock.
10. Thinking a stock in your portfolio is profitable
Your investment is only successful after a successful sale. Although a stock in your portfolio will appreciate significantly, in theory it could lose its value at any time. Therefore, the true measure of a successful investor is money earned, not a well-valued open stock portfolio.