Yes, you heard it right, there are things that you should avoid, no matter what its a Big No. Like Trespassing Area 51, or buying the stock of your favorite Pizza Chain. Just Kidding, there is more to it, today lets talk Stocks.
When it comes to Stock Market Investing you should do your due diligence before Investing and never listen to any random guy online, but trust me you can listen this random guy (me) on this one.
Below are the 5 mistakes every Investors should be avoid –
- FOMO (Fear of Missing Out) – As the name suggest it refers to the Fear of missing out on the Opportunity. It is one of most common mistake that a new Investor makes. Basically when you see a stock rally you worry that you might miss the boat and hence try to invest as much as you can to get your share of the pie. But often times it leads to unnecessary investment, and at times you end up buying stock way too higher than its intrinsic value.
- Panic Selling – Selling a stock when its price is low i.e. in a Bear Market. When a stock is undergoing correction or has been the victim of some bad speculations, we as an Investor turn on our Panic mode and again let the emotions rule our judgement resulting into selling of the stock when it is undervalued.
- Trying to Time the Market – The common mistake every Investor make is trying hard to time the Market and failing to do so (which almost everybody do). Rather a good Investment strategy is to invest consistently for the long terms and be patient about your Investments. Remember nobody can accurately time the Market, not even Warren Buffet.
- Sunk Cost Fallacy – Tendency to Invest in the fallen stock in order to recover the money invested. For example – I bought xyz corp share for INR 100 and the price fell to INR 50 in few weeks, without rethinking my strategy, doing research/analysis, I kept on buying more and more shares in order to average out the cost to be able to reap the benefits of future rise, But the future rise may never come.
- Failing to Diversify – One mistake every investor should avoid in long run is to invest only in a single sector or a very few stocks. One should diversify his/her portfolio in order to reduce the risk by investing in multiple sector so that if there is a Crisis or the Investment value goes down across one sector the other is there to back it up, hedging against the risk.
Greed, Fear, lack of Patience and often the lack of Understanding of the Investment is something we all should avoid as an Investor. A Investment should be done with all due diligence and rationality. Emotions, get rich quick schemes and lack of understanding is not good for any Investment. It is something I learnt the hard way, I too have committed to a few of the above mistakes. One thing you should always remember in the long run Market always tend to go up and hence by all means one should avoid emotions rule the decision making process. And if you are new to Investment, it is always a better idea to start with some sort of Index fund in order to lower the risk from Market fluctuations.
Bonus Content – One good Investment Strategy to follow during crisis like Covid is to be a Nibbler i.e. to keep buying small bites of a great company slowly as its share price fall, given it has enough cash reserve to survive the pandemic.
That’s all folks. Until next time, stay healthy, stay happy and keep Investing!
And if you are new to Investment you can consider opening a Demat Account at a brokerage firm like Zerodha.