The page focuses on the common mistakes made by some of my clients.
Over the past few years as a stock broker, I have seen these mistakes committed over and over again.
I wish you can learn from my clients' mistakes. I also hope they come across this page too.
Come back frequently to review these common mistakes. Find out what went wrong and correct it in your next stock investment.
Whether you are just getting started or have many years of investing experience, if you don’t recognize and correct your investing mistakes, you may either lose money or achieve mediocre investment returns.
1) Operate in the market without a strategy
An investor without a strategyis like a General going to war without a battle plan. Every $1 of your investment capital is like a little soldier in your camp.
Sending them to war without a battle plan means certain death against the well prepared enemies.
2) Averaging down in price
This mistake could come from the inappropriate use of the average down strategy.
It may seem logical to buy more of a stock as its price decline.
But what appears like a bargain buy may have a disastrous effect on your portfolio if you don't know what you are doing.
Don’t become an ‘involuntary’ investor by holding a declining stock.
3) Poor selection criteria for stocks
Most investors choose to listen to tips or rumors instead of doing their own research.
For those who does research, they may not have a proper selection criteria for filtering out the stocks most suited to their investment profile.
You should begin by differentiating between your investment wants and needs. From there, you can start to build your own watch listtailored to your investment needs.
4) Taking small profits while hanging on to losses
Imagine you buy a stock at $1.00 and sell it off at $1.05. You made a small profit of $0.05.
Even if you manage to do it 6 times with 6 different stocks, a loss on your 7th attempt will wipe out your previous profits. And I haven’t factor in the commissions!
In fact, you should learn how to manage your profitsin order to maximize your profits. By taking small quick profits, you are setting a ceiling on your potential investment returns.
5) Lack of discipline to implement stop loss
The main culprit for this mistake could be the HOPE that lies in all of us. HOPE is the emotion that keeps us alive during difficult times.
Hoping that your stock price will come back to your purchase price so that you can break even is a big no-no in successful investing
Instead, you should fear that your stock price will drop even further. So cut your losses quickly once your stop losspoint is penetrated.
Personally, the first time I read about the common mistakes from classics on stock investment, I shrugged them off; quite confident that I will not commit them since I already know.
It is only after a few stock investments later when I reflect on my losses that I committed these mistakes without even realizing it!
It’s like the first time I was told not to touch the boiling kettle. I guess people (maybe it’s just me) need to experience the pain to understand the real meaning and ingrain the lessons learned into their minds.
Image from begnaud