Having tried once to invest in stocks and encountering failures, novice investors consider the whole idea a bad idea and no longer want to try to invest in the stock market. But, like all phenomena, unsuccessful investments have their reasons. They are the basic mistakes that are typical for novice investors.
Superficial Study of Investment
You cannot play poker at a high level if you are not aware of poker hands and basic rules. The same applies to investing in stocks. Beginners rarely delve into the features of investment instruments in detail. As a rule, studying a company is limited to viewing the quotes chart and simple manipulations with it. Experienced investors, on the contrary, seek to learn as much as possible about the object. This is one of the main traits of successful investors – constantly learning and reading on various topics.
In addition to financial indicators, they are interested in the scope of the company, the state of the markets in which it trades, business plans, and even the latest news that can give an idea of possible volatility. Therefore, do not rush to invest in tools that you know nothing about. Take your time, take the time to collect, study information and, form at least a general picture of the investment prospects.
Another mistake is investing in young projects. In fact, only experienced investors who have a subtle intuition and their own system for determining the prospects of deposits can afford such liberties. Beginners should work only with highly reliable instruments, otherwise, the risk of losing money increases many times over.
The first enemy of an investor is expectations. Having made an investment in stocks for the first time, people expect fabulous profits, and right away. In reality, this does not happen.
Faced with the harsh reality, the novice investor feels great discomfort due to the large difference between expectations and the status quo. Prepare yourself for possible small losses, study the market, and correctly form an investment portfolio, through which you will achieve significant profits.
Fears Block Opportunities
Almost every novice investor is characterized by two qualities – increased greed for profit and excessive fussiness, due to the fear of losing money.
The first investment in your life in stocks should not be carried out without a clear understanding that trading without drawdowns does not happen in principle. Even trading gurus who receive a stable profit make mistakes and lose in some positions, not considering this fact to be shameful. Emotionality, caused by the desire to save money, often leads to the fact that due to a slight drawdown, the investor suffers losses, and sells assets along the way, losing the opportunity to earn.
Decisions dictated by emotions, intuition or excitement can lead to disaster. If your investment was successful once, it does not mean that success will be repeated tomorrow. And if a portfolio drops in value, it’s not because you’re unlucky.
If life is boring without emotions and you definitely want to “play” with finances, divide the portfolio into two parts. Be careful with one thing: this is a serious capital that should be invested according to the strategy.
Waiting for Better Times
There are no good or bad things about investing in stocks. There is only the inability of the investor to identify a trend with sufficient investment potential.
Try to delve into market processes, and pull up the theory. Over time, each market situation will become clear, which will increase your income and your self-confidence.
Not Diversifying Portfolio
One of the main rules of investing is that you cannot keep all your money in one asset. The goal is to reduce the risk of large losses. One company, one industry, or even one country’s stock market can go down.
Competent portfolio diversification implies investments in different markets and the use of protective assets that compensate for the effects of economic crises.
Investing Without Strategy
Every investor needs a strategy that can be adjusted, but not radically changed. Often an inexperienced investor, seeing a decrease in the value of a portfolio, is in a hurry to switch to another investment idea, which at the moment shows the best profitability. It is important to remember that the economy develops cyclically and growth follows a recession. If the portfolio is well diversified, there is no need to react to every drawdown.
Copying Strategies Blindly
The positive experience of acquaintances, even experienced investors, is not enough argument for making an investment decision. Especially if you do not know exactly how the instrument earns and how it provides profitability. Remember the story of the largest pyramid scheme in history, the victims of which were experienced investors.
Thinking You Are Better Than Others
Every investor believes they are “above average” and can avoid the mistakes that others have. Such a belief pushes the investor to take unjustified risks, which under most circumstances will result in losses.