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16 Common Mistakes made by Investors
& Traders
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.
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