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15
Common Mistakes Made by Investors
The list below details
some common mistakes most investors make. Review them
and try to avoid them when making investment decisions.
- Using poor stock
selection criteria. Beginning investors don't know
what to look for when purchasing a stock and often
end up buying shares in lacklustre companies.
- Buying a stock when
it’s trending down in price. Stocks are usually
down in price for a reason.
- Chasing losses. If
you buy a stock at $4 and then buy more when it
falls to $3, your average cost is $3.50. You are
chasing your losses and probably throwing good money
after bad.
- Buying low priced
stocks. These stocks are usually cheap due to
problems. Many institutional investors don't look at
low priced shares and institutional sponsorship is
one of the ingredients needed to help propel a
stock's price higher.
- Wanting to get rich
quick without doing the necessary homework. To make
money in the stock market, you must spend time doing
research, educating yourself, and learning from
previous mistakes.
- Buying on tips and
rumours. Most rumours are false and even if a tip is
correct, the stock still often falls in price.
- Buying companies
because they have a familiar name or product. Many
of the best investments will be names you may not
know very well. However, a little research can lead
you towards them.
- Acting on poor
advice. Most investors are not able to find good
information so it's critical to educate yourself as
much as possible.
- Not buying stocks
that rise to new highs. 98% of investors are afraid
to buy stocks as they begin to move into new high
ground. It just seems too high to them. Don't allow
your fears to dictate your purchases. Emotions are
far less accurate than markets.
- Stubbornly holding
onto small losses when you could get out cheaply and
move into a better performing stock. Again, don't
let your feelings run your portfolio.
- Cashing in small,
easy-to-take profits, and holding onto small losses.
This tactic is the exact opposite of correct
portfolio management strategy.
- Worrying too much
about taxes and commissions. Your objective should
be to first nail down a worthwhile net profit. After
all, if you’re not making a profit, you don’t
have to worry about tax.
- Putting price limits
on buy-and-sell orders. Novice investors rarely
place orders to buy or sell a share at the market
price. This procedure is poor because the investor
is quibbling for eighths and quarters of a point
rather than getting out of stocks that should be
sold to avoid substantial losses or buying into
popular stocks.
- Vacillating and not
being able to make up your mind as to when to buy,
sell, or hold a stock. This is a sign of having no
plan and without a plan you’re swimming against
the tide.
- Most investors cannot
look at stocks objectively. They are always hoping
and playing favourites, and they rely on their hopes
and personal opinions rather than paying attention
to the opinion of the marketplace, which is more
frequently right.
Next:
Conclusion
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