Most of the investors face losses in the initial stage of investing because it takes time to understand and learn about stock market basics which helps you to become a successful investor. In this article, we will discuss Top Mistakes that New Investors make in the stock market
Today we will discuss a few stock market mistakes which most investors commit and face losses. These mistakes should be avoided. We must be aware that we are investing in a particular business through the stock market rather than an individual stock.
When you are buying any shares in a company then even you will be a part-owner of that particular company as a shareholder.
No one is perfect in this world. Every investor will have profits and losses. However, some investors will make common mistakes in stock markets. To be an investor, it is essential for a person to think logically.
Many investors enter the stock market with new ideas and shine like stars. You can increase the possibilities of stock market investment success by becoming aware of common mistakes. Let’s take a look at common mistakes investors make.
Top Mistakes that New investors make in Stock Market
Depending on share price while investing in the stock market
In the long-term, the share price is dependent on the business performance of a particular company. In the short term, we may face fluctuations but the long-term share price is dependent upon business growth.
Let us take an example, Reliance power business has been performing badly in the market for a long time. The business performance in the long-term is bad so share prices have even dropped to lifetime lows.
However many people have invested in Reliance power after the price fall citing the reason that share price is cheap now!
Whenever you think of investing, you must understand the company’s business and analyze whether it can perform in the long-term or not.
Many investors Most of the people check the share price’s performance and start investing in it, which is a wrong process of investment. Before buying any share you need to know what is the stock price. How much you are investing price per share.
Holding on a share which is dropping down
We should not continue holding on to a share which is dropping down because of bad performance of business and lack of faith in these businesses.
For example, some people invest in JP associate or reliance communication companies whose fundamentals are low but still they keep on holding for the long term. By this, you will get huge losses as well as you will lose the opportunity cost.
We should not hold in a hope that it will recover when the company is not performing well. We must invest in a business that performs well in the long term.
Investing on stocks which are low priced
Most of the new investors think they can buy only a few shares if they invest on the highest share price and they invest in low stock prices. We should not invest in shares whose share price is below 50 rupees simply because it is trading at a low price. Returns are calculated in terms of percentage.
A 1000 rupees stock may double to 2000 rupees while 50 rupees stock may even fall to 25rs. So, we must find a growing business irrespective of the share price.
Investing in share to average out share price
We should not invest in shares of the same company which we have invested and are in loss, to make the average share price. It is okay if the company is undervalued and low price but we should not commit many mistakes to hide a single mistake.
When Jet Airways price dropped from 250 rupees to 150 rupees, people who have already invested in shares again invested in Jet Airways to lower the buying average price and lack knowledge of business performance.
Investing without learning and not understanding company’s management
We should make an in-depth analysis of the company in which we want to invest in the stock market. We should not invest by just reading about the company in newspapers or media.
We should learn stock market basics and understand the business, ethics, products, services, and corporate governance. We should invest in such companies who adopt changes and tackle them to avoid losses.
When you start investing in the stock market you may not earn profits because the market and company is new to us. We must learn something from our investment losses, analyze the company, and gain profits.
Going against the market trend
Some investors in the stock market give too much priority to what is communicated in business news. They will regularly follow the Financial news before making any stock market investment.
By investing in these securities, investors fall into the trap and can have a chance to lose all their capital that is invested in the stock market. It is essential for investors to study market trends before investing in the stock market.
Failing to Diversify
The simplest way to lose all your capital in the stock market is not diversifying. Maintaining a separate stock account for all your portfolio might be useful when that share value is moving up, but you’ll get a huge loss when it is moving down.
Moreover, buying more shares from a particular sector will not be considered as diversification, since sad news regarding that company usually pulls down its business.
Hence, I usually spread my shares or stocks out over a few sectors, and I will not allow stocks to account for over 10% of my portfolio.
Lack of Patience
To make more profits in the stock market patience is very important. Let us consider after buying shares or before buying shares; Impatience can never help investors to make high profits.
Accordingly, an investor must be patient and look for a better opportunity to invest in the stock market. If once invested, the investor has to give some time to perform. Only then an investor can end up with good profits.
Right approach to the stock market for an Investor
Learn about stock market basics, read articles, watch videos, attend live meetings, and learn stock market courses Online. You should also learn how to start investing in the stock market,
FAQS – Stock Market
What mistakes should investors avoid in the stock market
It is better to start with blue-chip companies (best-performing companies). Never buy penny stock or low price stock because most of them will fail. Never purchase stock based on the recommendation from news, friends, etc. Do not take help from the trading groups. They are all speculators and not investors. Always do your own analysis and buy according to the study.
How to invest in the stock market
Firstly, learn the stock market basics. You should know how to read a loss statement, balance sheet, Financial ratios like PE ratio, PB ratio.
Before investing in the stock market, you should be capable of identifying the company’s financial health using fundamental analysis and technical analysis.