For some people, investing is a talent, like being an artist. For most others, investing is something that should be learned. When you start out as an investor, not everything will be rosy. While you are allowed to make some minor mistakes, it’s very important to avoid making a massive mistake that can cost you considerably, like one of the following:
Putting All Your Eggs in One Basket
The age-old saying describes it best: Don’t place all your expectations on one thing and expect lucrative returns. Diversification is key in investing. If you only have a small amount to invest, you can invest on a reduced capacity in a single sector. But don’t bet everything you have on stocks from a single company or a single property. Start slow and learn to diversify your portfolio to truly succeed as an investor.
Day Trading Too Fast
Nearly all new investors trade stock. It’s risky, but the returns can be high. The potential to score big can lead some novice investors into trading too fast. Don’t end up buying too much or shorting stocks that seem to be declining in price. Rather, you should do your research before trading. Learn about stocks with the potential to increase in value in the future, such as marijuana stocks, which are undergoing decriminalization in many parts of the country. Remember that stock trading is not gambling. You should learn more about the stocks you want to buy or short before you actually take the leap.
Trying to Time the Market
Timing the market refers to an idea that there’s a way to predict where the market is going, so savvy investors can jump in at just the right time. This has proven to be a major fallacy. What happens in reality, according to financial experts, is that investors who try to time the market end up buying high in anticipation of rising future prices, and selling low when these prices don’t actually rise. Not even the most experienced Wall Street veteran can predict the market in advance. There are too many factors affecting trade for that. Therefore, don’t bother with this disproven method.
Buying at Low Prices
Newbie investors are easily duped by low prices. You are not making a bargain when you buy an asset at a low price. There should be some reliable indication that the asset would be worth more in the future. Keep in mind that investments are all about value, not prices alone.
Buying Stock from Companies Owned by “Visionaries”
Company CEOs have a way of portraying themselves to the public as visionaries or geniuses. In some cases, the picture might actually be true. However, don’t base your investment decisions on how well you like the celebrity profile of a CEO. Even the stocks from companies that sell immensely popular products could end up causing losses. Therefore, when investing, understanding what the business is actually about is crucial. Base your investment decisions on thorough research, not on what you may have read about in lifestyle magazines.
If you are a new investor, the best way to avoid the above mistakes is to learn more about the type of investment you are engaged in. Read books, articles, and take up an online course if you must. That’s the best way to avoid making a devastating mistake.
