When a new investor starts investing in the stock market it is quite obvious to make mistakes. But, as it is said “Failures are the pillars of success”, but what I think is “Failures are the pillars of success, if rooted at the right place”. Similarly, if an investor does not learn from the mistakes, then it really is failure of the investor. Here, in this article we will be discussing in this article.
So, without wasting much time let’s start discussing about the mistakes:
1. AVOID HERD MENTALITY:
Buying a stock just because your neighbour bought it or your friend suggested you to buy it, will just make you lose your money. One should never buy a stock without doing a proper research work on it. How can someone solve algebra without knowing about the variables. So one should know whose value to be found. Similarly, investing without knowing about the stock, will leave you with very low chances of earning a good amount of profit.
2. NOT HAVING A PLAN:
If someone does anything without proper planning, everybody knows what kinds of situation are seen. I guess everyone of us knows that. To avoid such situations one should have a proper plan laid out in one’s mind. One should know what kinds of returns can the market give over a period of time.
3. GIVING MORE IMPORTANCE TO EMOTIONS:
It is quite a common saying in the market that one should think more logically in a business. Or before making an investment, rather than thinking emotionally. In stock market many investors overlook the analysis and falls into emotional pits. They just want to get rich quickly.
4. DIVERSIFICATION IS GOOD BUT NOT OVER DIVERSIFICATION:
It is good to have a diversified portfolio, but it is bad to do over diversification. Consider an example where there is a basket with apples, oranges, pears and cherries. Now, you want to add mangoes to it. But the mangoes you are getting at this time is not of good quality and not at its right price. But, your desire of getting mango in that basket will force you to do the mistake of putting the mangoes of bad quality and that too at a bad price, will spoil the other fruits of the basket. So, an investor should diversify the portfolio but within a limit and in good and at right time.
5. BUYING SCRIPS AT 52 WEEK LOW:
This is the most commonly observed mistake being done by the investors in the stock market. Buying a stock just because it is trading at its 52 week low price does not make it a good buy. There are many reasons which drive a stock to its 52 week low. The stock might be undergoing through some fundamental problems. It might be available at this price due to any other bad news regarding the stock being circulated in the market. Or it might be so due to the over going phase of correction. One should buy stock at 52 week low only if the stock is available at that price due to some correction phase, which is very common in stock market.
6. ALTERING FINANCIAL PLANS:
An investor should not make changes in his/her plan just because of the fall of the market. The fall of market is nothing new. It has been falling and rising since the time of its starting. It has been an up and down ride in the market for the investors from the time they have started their investment in the market. Don’t base the decisions of your investment on the prevailing mood of the market. Your decisions should be based on the mood and the fundamentals of stock.
7. SMALL TIME HORIZON:
It is impossible to time the market but what is important is to spend time in the market. If an investor wants to earn money in share market, it is important for the investor to have a clear vision of upcoming changes in the market in the coming five to six years. If an investor wants to earn money it is necessary for the investor to spend the maximum possible time to get the best returns.
One more mistake is not deciding stop loss for your trades.
It is also important, not to panic and be scared. To read about it: TYPES OF FEARS IN STOCK MARKET
An investor has to be prepared for all kinds of ups and down and deal them with a calm and composed mind by doing proper analysis. This will help them in making decision by keeping all the aspects and results in mind. As a new investor knowing the common mistakes and avoiding them will be very helpful, right from the beginning to have good profit from market.