When you are new in the stock market, you need to understand that it is more about minimizing the risk of potential losses and then maximizing the returns. As a beginner, you can wonder how to start share trading, and make some basic mistakes but it is inevitable. However, it may cost you in heavy losses. You should avoid such rookie mistakes to make profitable investments and open a sustainable trading account. Some of such mistakes are as follows:
1. Getting emotionally invested in a company
Letting your emotions rule is a big issue in investing. The problem occurs when you get emotional with an organization and ignore the red flags. Generally, when the organization, in which you have invested, is doing well, it’s easy to get attached emotionally and fall in love with it and sit in comfort level. You need to remember that you just bought its shares to make money which may go down anytime. If, fundamentally, there is a need to change the company to achieve your financial goal, consider selling the stocks.
Look at fundamentals
Keep looking at the company’s fundamentals, if they are being compromised, invest freshly. You may find a couple of red flags that say fundamentals are changing. For example:
- If there is any disruption in the performance quarter-on-quarter.
- If the non-performing assets are increasing
- If there is any sudden exit of the senior leadership, etc.
Look at organizational factors of a company rather than returns.
Not understanding the product
Warren Buffett suggests avoiding businesses you don’t understand. Maybe you have bought stock based on recommendations only that is doing well. But then you may not be able to know when it’s time to sell it. If you do not understand the business, forget it. To avoid this, build a diversified portfolio. Build an ETF or mutual fund portfolio. Follow the thumb rule – do not allocate more than 10% to one sector.
2. Assumption of Quick Money
Share Trading investment is a great way to earn short-term money. But as a novice investor, you need to work hard on getting information about the stock market. Without informed-decision, investing will be like speculation and you may have to forget about returns. Before investing, you need to check out and analyze the resources that can enhance your investing tactics. Such resources are financial reports that help you to learn the intricacies of investing.
3. Using Money You Cannot Afford to Risk
You may see the stock market as a printing machine of currency that can triple or quadruple your funds. The excitement and the hype of the stock market may run high and you may borrow money to blow away in the stock market. Do not ever do this whether you are a novice or experienced in the stock market. You may realize it later that your interest has become nil as you need to pay it for borrowings also.
Do not gamble, just try to understand the stock market. You may eventually lose every penny with which you gamble. Do not use money that you cannot afford to take a risk on. It will just increase your stress level, your negative emotions will get heightened, and you can make wrong decisions to buy and sell stocks. To make relaxed decisions, invest that you can afford.
How to Avoid These Mistakes?
To keep your investment portfolio on track:
- Develop a plan of action
- Remember why you are investing your funds.
- Temper your expectations.
- Do not expect that your investment will make you rich in no time.
- If you are not feeling confident, seek a reputable financial planner.