Barely making money from your investments? Feeling that investing in stocks was just a mistake?

You’re probably making these five mistakes!

The stock market is a playground for some and a maze for others. In which side you are? There are a few common mistakes that some investors might not know they’re making. Are you? Avoid them now!

What you will find plenty of in the stock market? Risk and uncertainty!

The uncertainty and risk that the stock market offers is what makes it attractive to investors. These elements will create the opportunity for return, but not all the time. Even though nobody knows how the stock market will react tomorrow, make sure you avoid these pitfalls that you probably don’t know you’re making. 

1. Don’t listen to rumors

Don’t get influenced by brokers, advisors paid on commissions or in general financial news broadcasters. Simply many people, who talk about specific stocks, have an agenda and they have their own reasons to talk or write about particular stocks. Possibly they own stocks themselves or they get paid to talk about it.

2. Trusting your gut is not enough. 

There is nothing wrong with trusting your instinct. But, avoid going out for stock shopping and pick companies that you heard in the news, recognize the logo or because you like the ticker (the ticker is the Unique Identification Code for every stock i.e Tesla’s Ticker is TSLA). Invest in companies for a reason that is backed up by data and after you have checked their financials. Highly recommended to start with industries and companies you are familiar with. 

 
 
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3. Don’t put all your money in stocks. 

A balanced portfolio of an investor includes different sources of investments such as stocks, bonds, money in the bank (savings), real estate, collectibles, etc. Investing in just one category won’t provide full diversification and you’re risking losing or reducing the value of your money. It’s like nutrition, if you eat only chicken or pasta, you will have a deficit in some important nutrients that could make your body healthier and stronger.

4. Don’t put all your money into one company.

The chance that you put all your money in super stock, at the right time at the right price, is 1 in a million. Unless you were a true believer of Elon Mask back in 2016-2019 and by then you’re already a millionaire.

But, let’s be realistic, putting all your money in one stock is pure gambling not investing. Companies like Tesla or Apple are once every 30 years and the ones who actually invest early in those companies are investing in one million other companies in order to come out winning in just one (Small Cap Market). So highly avoid investing in just one stock!

5. Never buy when the stock goes up

Let’s go by the phrase “What goes up must come down”. Nobody wants to purchase an overvalued stock that will require a longer time to pay you off.

Now, you may wonder how I know if the stock reached a peak? Well, you don’t know, because nobody knows.

But, there are many ways to identify an overvalued stock, so in a way, you can understand if the high price is a soon-to-burst bubble. You can use different metrics to evaluate if the stock is overvalued such as PE ratio, Cash Flow return,  SWOT analysis, check the company’s recent investments, compare with the industry average and competitors and many more.

 

Investing can be fun but needs time and effort. Learn how to get started with your investing journey or take a look at this book list for beginner investors. 

 

Hope this article helped you to identify any mistakes you might be doing and avoid them. The stock market can generate income and money for investors, you just need to watch out for some common pitfalls. Work smart, not hard!

 

Article by A. CH