The list below details some common mistakes most investors make. Review them and try to avoid them when making investment decisions.
Using poor stock selection criteria. Beginning investors don't know what to look for when purchasing a stock and often end up buying shares in lacklustre companies.
Buying a stock when it’s trending down in price. Stocks are usually down in price for a reason.
Chasing losses. If you buy a stock at $4 and then buy more when it falls to $3, your average cost is $3.50. You are chasing your losses and probably throwing good money after bad.
Buying low priced stocks. These stocks are usually cheap due to problems. Many institutional investors don't look at low priced shares and institutional sponsorship is one of the ingredients needed to help propel a stock's price higher.
Wanting to get rich quick without doing the necessary homework. To make money in the stock market, you must spend time doing research, educating yourself, and learning from previous mistakes.
Buying on tips and rumours. Most rumours are false and even if a tip is correct, the stock still often falls in price.
Buying companies because they have a familiar name or product. Many of the best investments will be names you may not know very well. However, a little research can lead you towards them.
Acting on poor advice. Most investors are not able to find good information so it's critical to educate yourself as much as possible.
Not buying stocks that rise to new highs. 98% of investors are afraid to buy stocks as they begin to move into new high ground. It just seems too high to them. Don't allow your fears to dictate your purchases. Emotions are far less accurate than markets.
Stubbornly holding onto small losses when you could get out cheaply and move into a better performing stock. Again, don't let your feelings run your portfolio.
Cashing in small, easy-to-take profits, and holding onto small losses. This tactic is the exact opposite of correct portfolio management strategy.
Worrying too much about taxes and commissions. Your objective should be to first nail down a worthwhile net profit. After all, if you’re not making a profit, you don’t have to worry about tax.
Putting price limits on buy-and-sell orders. Novice investors rarely place orders to buy or sell a share at the market price. This procedure is poor because the investor is quibbling for eighths and quarters of a point rather than getting out of stocks that should be sold to avoid substantial losses or buying into popular stocks.
Vacillating and not being able to make up your mind as to when to buy, sell, or hold a stock. This is a sign of having no plan and without a plan you’re swimming against the tide.
Most investors cannot look at stocks objectively. They are always hoping and playing favourites, and they rely on their hopes and personal opinions rather than paying attention to the opinion of the marketplace, which is more frequently right.
Investing and Trading is running a business. Those who do not treat it like a business may forgo the psychology to succeed. SMSF / DIY Superannuation funds typically are run like a business and demonstrate ongoing business principles. Managing stock, maximising returns, reducing costs and ongoing evaluation, all key principles in running a successful business.