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I just started buying stock a month ago. I was tired of being financially illiterate, basically I had just saved a lot of money putting it all in the bank, but I feel the stock market over the long term is the way to go. What are the mistakes I should avoid while trading?
The first mistake you and make is buying only on recommendation and not analyzing the opportunity well, over-relying on others recommendation, buying a company which you do not understand enough. So don’t take decisions quickly first you study and analyze than take a decision.
The second mistake is don’t bring too much greed. Buying more wasn’t wrong. It was the intention behind the buy. There is nothing wrong with increasing the position once it moves to your target, but it has to be backed up with strong reasons and studies.
If you want more and more and more, you might not get anything. In fact, you can lose heavily. Do not invest more than you could afford to lose. Do not take unnecessary risks, factor the losses too. This was my mistake so at some level you have to take important decisions for profit booking. Every time you get some good profit, it’s a wise idea to at least book some partial profits out of it.
In my experience, the biggest mistake stock traders make is that, they have no idea how to evaluate a stock. The reason most retail investors lose money is because they don’t understand the fundamentals of what they’re investing in. People spend more time researching the purchase of a new car than they do putting the same amount of money or even more into buying stocks. They buy shares in firms whose names they recognize, brands they like, or dubious stock tips they saw on TV or read about online. They chase investing trends and “hot stocks” because they have a fear of missing out. In a real sense, they are gambling: placing their bets and hoping the stock goes up with no real sense of why it would or wouldn’t.
Instead of “picking a stock” and trying to figure out if it is a good investment, investors need to think “top down”, starting with the economy, industry sector, companies with in the sector, and then the company’s outlook. Stocks don’t exist in their own little bubble: They are part of a dynamic ecosystem, and influenced by many different inputs.