When someone starts investing, making mistakes is a part of the learning process of investment. Anyway, it is possible to separate a successful investor from the poor one.
Almost all investors no matter new or experienced have gone out of common sense and made one or two mistakes over time. It is likely impossible to be perfect but knowing some of the common errors and mistakes can lower the losses.
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Let’s know 5 expensive mistakes you should avoid when investing in the stock market.
#1 Mistake: Using Too Much Margin
While purchasing securities by borrowed money margin is used. When margin can be helpful to make money but it might also increase your losses by making it a clear-cut downside.
The complete worst thing people can do as a new investor becomes beside themselves is what it looks like free money. Suppose you use margin and investing does not go as you planned, then you are left with a big debt burden for nothing.
One thing you should ask yourself is what could you buy stocks using a credit card, in fact, you won’t. This is the same concept as buying stocks using margin.
Further, you need to track your position more closely due to high profit and loss which can be occurred in the movement if you use margin. However, if you do not have the knowledge and time to track your position then the brokerage company will sell your stock in order to recover the losses which you have.
If you are a new investor then use margin only if you have a good understanding of its features and dangers.
#2 Mistake: Buying on Baseless Tips
Every investor perhaps makes these mistakes in their investing carrier at some point. Sometimes you might have heard your friends and family talking about a few certain stocks that have launched a killer earning product.
This may be true but this news does not make sense you should place a buy order for that stock using an online brokerage account in a hurry.
One other baseless tips come from professionals or from TV they all talk about a few specific stocks which every investor must buy but for your kind information this is nothing but the flavor of the day.
These tips for buying stocks do not go directly down after you have purchased that stock. In most cases, media tips for buying a stock are nothing but false tips.
Now, this does not mean that you should neglect all the stock tips. Make sure tips that grab your attention try to find the source of information. The very next thing you need to do homework, is do deep research so that you better know what stock you are buying and why?
When buying a stock you should make sure it is the right investment for you, do not buy stock by believing what the fund manager said in media interviews.
Next time you need to buy stock don’t believe in the tip unless you got the fact behind it and you are comfortable with that investment.
#3 Mistake: Undisciplined Day Trading
If you are being forced to become an active trader, you should think twice before you start day trading. It can be a dangerous game for the new investor so the day trading should start with only experienced investors.
However, experienced traders can gain benefits from day trading because they have the necessary tools and techniques whereas the new or average investor can lose money in day trading because of a lack of knowledge.
An average day trading workstation can cost thousands for maintaining day trading software. If you want to start day trading you will need a sizable amount of trading money to manage an adequate day trading plan.
If you are not in a condition to bear risk there is another good thing you can look the way to build wealth.
#4 Mistake: Buying Stocks which Turn Up Cheap
This is one of the biggest mistakes investors do it by comparing the share price of the stock’s last few weeks high. Many investors think that the stock which performed well last year can give a good return.
But the real fact is that stock which has given a profit of 30 percent last year will not surely give the same or higher percentage of benefit. It is good practice to analyze why the stock has fallen.
The reason for the lower stock price may be the resignation of the CEO or a boost in market competition. It is very important to keep a close eye on a stock price because a lower stock price can falsely signal to buy stocks.
#5 Mistake: Underestimating Your Capability
Few investors think they cannot succeed in stock market investing because success in stock market investment is reserved for some experienced investors only.
This concept is not true at all. With the help of research and training, any average investor can be turned into well-equipped to manage their own money and portfolio investing decisions. Any average investor who has sound knowledge of investing can beat the market by making the proper investment.
The Final Thought!
At a time when the stock market’s affected by generating large profits (and losses), there is a large number of faulty advice and unworthy decision that moves around.
As a retail investor, the best practice is you can create a long-term portfolio and decide on an investment strategy and if you are comfortable with that strategy then stick with it.
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