Investors are prone to making mistakes when it comes to stocks. However, avoidance of such mistakes is very easy. Before you delve into the world of stocks, you must be familiar with these mistakes and strive well to avoid them. It is only in doing so, can you really make a fortune trading stocks.
- No trading strategy
“No wind blows in favor of the ship that has no direction.” — Michel Eyquem de Montaigne.
Someone who has no strategy is willing to try anything that comes to mind. You must have a strategy for trading, how much are you willing to invest and for how long, your risk management plan and portfolio expansion plan. Doing these will give a sense of direction and focus. You can always change your strategy if it’s not favorable.
- Buying bad stock
One bad thing about bad stocks is that they are difficult to sell and most times investors will keep holding a stock with the hope that it will bounce back to normal. This is a very bad mistake; a good investor should know when to sell a bad stock. Set your lower limits of loss, if when the stock price gets to it, should prompt you to sell.
- Not starting small
For short term traders, the advice is “don’t get greedy”, even though you might be tempted to buy big in order to sell big, remember that there is a possibility of losing all your money. Set aside a specified amount of money you can afford to lose and use for your stock trading.
- Getting emotional about a stock
There is no sentiment in investment. That you love the product of one company or you’re your friend is the CEO doesn’t it a good company to invest in. remove any emotional attachment with any company you want to invest and invest base on the health and stability of the company.
- Wrong diversification
Even though diversification reduces risk and increases the chances of success, poor diversification does the opposite. Don’t just invest in any company you see because you want to diversify, and don’t invest in so many stocks you cannot manage. Go for healthy and stable companies and invest in as many as you will be able to manage.
- Too much monitoring of stocks
“Go for a business that any idiot can run – because sooner or later, any idiot probably is going to run it.”- peter Lynch
Except you are a short term trader, it is not to advisable be watching your stocks too closely. Stocks are not money – spinning machines, they need time mature. Go rather for stable companies that will afford you peace and comfort.
- Impatience
“If you are not willing to own a stock for 10 years, do not even think about owning it for 10 minutes.”- Warren Buffet
Investing in a long term stock market requires that you have patience. Stock market is not a get-rich-quick scheme. If you don’t have patience, don’t involve yourself in stock investment. Unfortunately, long term investors do focus on the short term.
