While making mistakes is part of the learning process, it’s all too often that plain old common sense separates a successful investor from a poor one. Being perfect may be impossible, but knowing some of the common investing errors can help deter you from going down the path of losers. We are going to discuss some of the most common investing mistakes made by both the new and experienced investors.
- Day Trading – Day trading should only be attempted by the most seasoned investors. In addition to investment savvy, a successful day trader needs access to special equipment that is rarely available to the average trader. Unless you have the expertise, equipment and access to speedy order execution, think twice before day trading.
- Buying on Unfounded Tips – Buying on media tips is often unfounded on nothing more than a speculative gamble. If a stock tips really grabs your attention, first consider the source, then do your research to get the facts right on what and why you are buying.
- Using too much Margin – Margin is the use of borrowed Money to purchase securities. Margin can help you make more money and can also exaggerate your loses. The worst thing you can do as a new investor is become carried away with what seems like free money-if you use margin and your investment doesn’t go your way, you end up with a large debt obligation for nothing. Using margin requires you to monitor your positions much more closely because of the exaggerated gains and loses that accompany small movements in price. New investors should use the margin sparingly, if at all. Use it only if you understand all its aspects and dangers.
- Compounding Your losses by averaging down – If one of your stocks has a sharp decrease in its price, it is better to try to determine the reasons for the change and assess whether the company is a good investment for the future other than holding on it and hoping for the best. Letting your pride get in the way of sound investment decisions is not a wise move and can decimate your portfolio’s value in a short amount of time. The best thing to do is to remain rational and act appropriately when you are inevitably confronted with a loss on what seemed a good investment.
- Underestimating your Abilities – With a little time devoted to learning and research, any investor can become well equipped to control their own portfolio and investing decisions and be profitable. You shouldn’t underestimate your abilities or your own potential.
- When buying stock, overlooking the, “Big Picture” – Attempting to identify buy and sell opportunities with complex technical analysis may work a great deal of the time, but if the world is changing against your company, sooner or later you will lose. Assessing a company from a qualitative standpoint is as important as looking at the sales and earnings. Qualitative analysis or looking at big picture is a strategy that is one of the easiest and most effective for evaluating a potential investment.
- Buying stocks that appear cheap – It is always pays to analyze why a stock has decreased before making a decision to buy it or not, other than just buying because the price has fallen. Deteriorating fundamentals, increased competition or even CEO resignation are all possible reasons for the lower stock’s price but they also provide good reasons to suspect that the stock’s price might not increase anytime soon. Do your homework and analyze a stock’s outlook before you invest in it.