We always hear great words of wisdom about investing. The good habits, the diligence, the strategy and even the principles. In fact, we know them so well that it is easy to quote them out.
Knowing what to do is one side of a coin. But knowing what not to do will actually save you from losing big time.
So, 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. Skills and understanding are vital to analyzing a company before making investing decisions. Unfortunately, these analytical skills are not available in our curriculum syllabus. Usually, people jump straight into the stock market in search of quick bucks. In the end, this would ultimately end up as our first loss in the stock market.
Never ever buy a stock you hear as a whisper or rumour. Maybe you might 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 about 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 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 with the noise the news which keeps screaming bearish news every now and then, it is very normal to be timing the market unconsciously.
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 prices can go.
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 dearer mistake!
4. Indulging in Leveraged Products Irresponsibly
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 irresponsibly.
If you can’t go big, go home. Right?
For those who have invested or read the news long enough, we have seen companies borrowing more than what they could afford. In the end, succumbing to loan and payment defaults.
The same goes to how we manage our personal cash flow. Borrowing incurs an interest expense that any borrower needs to pay back eventually. The worst combination would be borrowing and to speculate on share prices movement irresponsibly. When your judgment goes wrong, you end up losing your borrowings and still need to pay interests on top of the borrowings.
Investing on its own is already a game of risk. Try not to take on more risk by being irresponsible with leverage positions. it would be a costly and detrimental mistake!
5. Having No Patience
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 within a tap away. Maybe all these technological advancements somehow nerfed our patience level. Everything has to be now, tomorrow or even yesterday.
As impossible and highly questionable returns some opportunities may seem, a lot of people nowadays tend to ignore the downsides of a lucrative high return opportunity. That is why some people have always been on the losing end in investing every single time.
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.