Top Investing Mistakes by Beginners!
We get asked time and time again to cover some of the biggest mistakes made by investors beginning to invest in the stock market as well as seasoned investors who have been trading for a long time, surprisingly these mistakes are common between all investors! The lesson being these are some of the toughest mistakes to overcome and even seasoned investors have problems overcoming them! So I’m going to address them here! These are some of the more common mistakes, or “misconceptions”, for a lack of a better word, regarding investing in the markets!
1) Investors get scared very easily – on a few down days in a row they will often begin to get worried and start unwinding or selling their investments, sometimes at losses or sometimes at gains. In a scenario where you may be down on your investment and the markets are getting worse, or are bearish for a week or two, you really need to ask yourself – Have you truly lost your money? The truth is that you actually don’t lose your money until you sell the stock! If you bought 1,000 shares of Citigroup at $4.00 and it went to $3.80, you haven’t lose $0.20 cents because you still own the stock. You are still entitled to a dividend on 1,000 shares of Citigroup and are still entitled to any future stock appreciation in that company. Lesson being don’t jump to sell your stock if you are confident in your research on it and are comfortable with your decision. You may have just missed an entry point as far as timing, but this doesn’t mean you own a bad stock!
In fact, if you are truly confident in your stock pick, then when the markets drop, you should be chanting YES!! Because you will be able to purchase more of the stock and lower your average cost down. We will cover advantages of lowering your cost base on shares in our trading seminars when we cover the tax advantages and disadvantages of trading.
2) Critical mistake number two – sometimes you need to face up to a bad stock choice. Sometimes its not the overall market that is dragging your stock down or speculation. Sometimes all the economic indicators are pointing upwards, the stock market is climbing, yet your stock is dragging and your company is consistently coming out with negative news in the markets. Investors sometimes hold on too long and leave significant money on the table. Don’t be too reluctant to sell, definitely weigh your options!
3) Lastly, investors sometimes have too big a portfolio. Some investors come to us with 30-40 stocks in their portfolio when we only recommend a maximum of 10-15 stocks at any point in time, and of course you want to be diversified in as many industries/sectors as possible so you don’t have all your eggs in one basket if the markets hit one sector worse than others.
Be disciplined and know your investments and your portfolio. Investors sometimes get too excited and let their portfolios get overbearing. Like our friend Warren Buffett says (http://www.360valueinvesting.com), keep investing simple! If you follow a disciplined investing approach and keep the above investing mistakes in mind, you should have a good start!
Good luck and see you in the upcoming seminars!!
Kevin & Ali, The Investing Guys
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