Five Basic Mistakes to be Avoided as a Newbie Stock Investor

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Stock investing is one of the most rewarding types of investment if done right. However, it is also one of the riskiest. Remember the old saying “high risk, high return”. That is why throughout the history of stock investing, countless people have fallen prey to few simple mistakes especially the newbie stock investors, people who know nothing much and yet throw their money into stock market. The damage done due to such mistakes can be quite overwhelming.

Try not to panic

You must ensure that you can handle the stress of being involved in the stock market. It is not everyone’s cup of tea. The ups and downs of a stock market can be and will be quite extreme at times and the value of the stock you have invested in might fluctuate without any warning. There are many things which might influence the stock price, and you will not be able to predict most of them. So, don’t be surprised when your $ 30 stock becomes $ 20 in a single day especially with the current unpredictable market. That is why if you personally feel you cannot handle such stress, do not invest in stock. Never. Go for other alternatives such as Fixed Deposits, bonds or equity funds.

Know your limits

Always know how much you can invest in. In other words, know your limits and never go beyond the limits. Never invest in anything outside your range and never ever borrow money to fund for your stock investment. You should only use the extra money you have to invest in stocks. This is because if things do not go as planned, you might need to hold on to your stocks for 1 year or more without selling them. The amount of money you have invested might be stuck there for a very long time. And if you’re using borrowed money, the interest rate might kill you before the stock does. Always ensure you have enough money for rainy days before you start investing in stocks.

Don’t listen to others including the experts

We have countless number of investment experts and stock analysts in this world and rest assure that we will never run out of expert opinions. You can look for them easily on the Internet. The thing here is that they are not always right. As a matter of fact, most of them are not right. They will provide you with their version of analysis and information but at the end of the day, you will be the one who make the decision. If possible, try to do your own analysis and research. After gaining some experience, you will know how to make the right decision. A common mistake made by most newbie investors is that they listen too much to others – be it relatives, friends, their stock brokers, or the investment experts. Always take in their opinions with a pinch of salt. After all, if they are always right, they would have become as rich as Warren E. Buffett by now. And remember, even the great Omaha investor is not right all the time.

Don’t time the market because nobody can

There are a lot of investors who like to time the market in order to gain some quick profits. The problem is that nobody can ever time the market correctly, not you, not me, not the investment experts and not even Warren Buffett. After 2 days of downward trend, the sign (data, information, news, etc) might point to a market rebound but this sign is never 100% accurate. On the 3rd day, the market might still be heading downwards due to selling pressure. It’s never possible to actually time the market. I’ve made this mistake before. I bought stock A after 3 days of continuous downtrend, and the signs are showing the 4th day would see a rebound and the value of the stock is actually higher than the stock price at that time. But it did not happen. The price continued to fall for 1 week due to overselling pressure. Everyone was panicking. That is why even with all the relevant information, timing the market is still not possible. Don’t try it.

Invest and not gamble

Remember that stock investing is a type of investment, not a type of gambling. Always do your research prior to throwing any of your money because if you jump into the stock market without doing your own analysis or research, it is most likely that you are actually gambling your money away or putting your money’s fate on the hands of others – most of the time, the people who will leave before you do. Always invest your money in the good and profitable companies. You will know which company is performing better once you have done your analysis and research. Remember that when it comes to stock investing, it is the long-term prospect of the investment which matters, not the short term profit that it might (or might not) give you. Short-term profit taking requires too much time and efforts and is not meant for people with a day job like us.

Honestly, I consider myself as a beginner in stock investing even though I have been in the stock market for 2 years. My past results are mixed results. I have lost more than 5 months of my monthly income due to the recent credit crisis and also due to the 5 mistakes which I have mentioned above, but I have also earned quite a lot before that (though the total losses far outweigh the earnings). I have since learnt my lessons, even though in a hard way. I’m sharing this information with you all in the hope that you will not repeat the mistakes which I have made. I might not be right with the above points, but those are solely based on my personal opinions.

Hope it helps. And good luck to all of us and may you achieve success in the world of stock investing.

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