Watching the cooking channel and eating in restaurants twice a week does not a chef make. Ditto for investing in stocks.
You can do all the research in the world, speak to the best advisors and read all the books, but you will still make mistakes when you first start investing. Everything is theoretical until you start applying it yourself. Mistakes are inevitable, the key is to minimize them.
That said, people have been investing for decades. And with all those years of experience, certain trends appear, certain mistakes repeat themselves. This article will show you some of the most common mistakes investors make, and how you can avoid them.
Mistake # 1: The House always wins.
Many investors forget to include the cost of broker commissions when they calculate fees for getting in AND getting out of trades. This has some serious implications for the average investor, as they might think that they are making a profit, when in fact, after commissions, they have a loss. Every broker has different commissions and different rules. Make sure you find out ALL fees before you invest. Wallstreetsurvivor takes a (virtual) $9.99 commission to keep things authentic. You can see this on the trade page
Mistake # 2: Humpty Dumpty sat on a wall…
One of the first rules of investing is to diversify. This means reducing your risk by investing in different companies and/or industries. If you invest in one company and it turns out to be a loser, your entire portfolio will suffer. Alternatively, if you have a variety of stocks and one of them loses, the rest of your portfolio will help balance you out. Granted, the highs will be lower, but the lows will be higher. Bottom line: Don’t put all your eggs in one basket, because if that egg breaks all your left with is yoke. If you have only one stock in your portfolio, buy a few more!
Mistake # 3: Bulls make money, bears make money…pigs get slaughtered.
What does this mean? The fact is, the market swings and it always will. There will be unavoidable ups and downs. Bulls think the markets will rise, and make money on the ups. Bears think the markets will drop and make money on the downs. Pigs are greedy and try to make money by playing both sides. I think you can guess what happens to them! Bottom line: it’s ok to be a bear, it’s ok to be a bull – but never be a pig. (Apologies to Miss Piggy)
Mistake # 4: Don’t lose sight of the prize
Turbulence is not just reserved for airplanes. You will see plenty of volatility (swings) in the market and the trick is not to let that affect you. It is important to recognize that owning stocks is like riding a roller-coaster; there will be ups but there will also be downs. This is an almost universal truth. If you have done your research and made up your mind about which stocks suit you and your portfolio, ride out the waves.
Mistake # 5: Playing on the news
If you make a trade based on what you heard on the morning news, guess what …it’s too late. There are bigger fish in the sea who have already absorbed the news and made the trades to affect the price. Basically, by the time you read it, the market has already adjusted. So be aware of your timing.
Mistake # 6: You are not the oracle…of Omaha
Do not become over-confident in yourself or the market. Respect it and ride it but don’t believe that you have the power to tame it. Invest only in what you know (if you know stocks, invest in stocks…don’t go for options and futures or swaps).
And the Final Mistake: Thinking you can’t make mistakes
Stuff happens, right? We all make mistakes. Unavoidable. That said, there are good mistakes and bad mistakes. Acknowledging the ones we make helps us from repeating them. Keep your eyes open constantly, recognize and listen to what you’re doing wrong, and make efforts to change it. Practice makes perfect!
Experience is the name everyone gives to their mistakes – Oscar Wilde
To learn from your mistakes risk-free, trade something at Wall Street Survivor.