We always hear great words of wisdom about investing. The good habits, the diligence, the strategy and even the principles. We know them so well that it is easy to quote them out like a song lyric.
Knowing what to do is one side of a coin. Knowing what not to do will actually save you from losing big time.
Here are 5 basic mistakes you should avoid and remember not to commit.
1. Getting whispers, rumours and tips as your source of info
This is the most commonly made mistake of a retail investor. We admit, that to really make a good investment decision, certain skills and understanding are required to analyze a company. Unfortunately, these analytical skills are not necessarily taught in our curriculum syllabus. Once we reached our early 20’s and the idea of needing to earn more money crops up in mind, we jump straight into the stock market after hearing tips and rumours on what to buy, which would ultimately end up as the first loss we record in the stock market.
Never ever buy a stock you hear as a whisper or rumour. You may make money the first time. But it will then fuel your greed to buy more. In the end, you would end up losing more.
2. Not analyzing and studying a company well enough
There are tons and tons of listed companies all around the world. Frankly speaking, it is very impossible to study every company to sieve out the best of the best. Some industries are more difficult to study. And it might be discouraging to keep spending your time to study companies non-stop until you find a wonderful company to invest.
Stick to the basics or start out with an easy to study business. Investing is not buying stocks every day. A great deal of it involves studying and analysis. Clicking the buy button on your screen is just the execution part of it, which takes the least amount of time!
3. Timing the market
I somehow come to realize that most of us have high confidence to predict an outcome.Maybe the same trait gets transferred to stocks investing, where we always think we know when is the best time to buy. Coupled by the media which keeps screaming bearish news every now and then, it is very normal to be put off into investing, or withdrawing all your monies from your investment to wait for the next big crash.
History has shown that all successful investors did not profit from a one off market crash. It takes diligence and balls of steel to buy fantastic companies at low prices and more at even lower prices, even without knowing how low the price can get.
Never time the market. Yes you may prevent yourself from seeing unnecessary paper losses, but preventing yourself from capitalizing on great opportunities to buy great companies at fantastic prices is a far more dear mistake!
4. Indulging in leveraged products
Never invest more than you could lose. I have seen plenty of people built their confidence over the successive wins in investing, and they eventually got the courage to borrow and invest or dabble into leveraged products.
If you can’t go big, go home. Right?
For those who have invested or read the news long enough, we all have time to time encountered companies that borrowed more than what they could afford to pay back. Bit off more than what they could chew, ended up defaulting their loans and payments.
Well the same theory goes back to how we manage our personal cash flow. Borrowing incurs an interest expense cost that any borrower needs to pay back eventually. The worst combination would be borrowing and to speculate on share prices movement. On the worst case scenario, your judgment goes wrong, you end up losing the borrowed money, and you need to repay the borrowed money PLUS interests expenses.
Investing itself for higher returns already involves a certain magnitude of risks. Try not to take on more risk to potentially put yourself into a tight situation if the unfortunate happens!
5. Patience, my young Padawan!
Arguably one of the most important aspects when it comes to investing, is the essence of time.
Patience is a virtue hard to come by in an age where information is available a click away, a message is available with a tap away. All the technological stuffs and advances, somehow “nerf-ed” our patience level. Everything has to be now, tomorrow or even yesterday.
As impossible and highly questionable returns some opportunities may be, a lot of people nowadays tend to ignore the downsides of a lucrative high return opportunity. That is why Multi Level Marketing gimmicks and scams have ravaged Malaysia and Singapore for the past few years.
Time is the friend of the wonderful company, the enemy of the mediocre. So when you think you found a fantastic company, hold on to it for a long time. Trust me, your returns will be beyond satisfactory.