There’s this misconception that stock investing is only for rich people and that you will only lose money if you invest in stocks.
But during the past decade, stock investing has become one of the number one investment options in the world.
Thus, many newcomers jump into the stock market even without thorough research on the matter. The lack of knowledge about stock investing, and stocks themselves, can be one of the reasons why some people lose money in it.
If you just started investing in stocks, there are a lot of things to learn about. It’s not as easy as you thought it is. There might be some mistakes that you’re already making all along.
Avoid These Stock Investing Pitfalls
If you want to be successful in stock investing, you need to learn to avoid making these common mistakes:
- Overreacting To Bad News
The stock market isn’t entirely your fault if it goes down, and it’s not entirely the fault of the company management either. You must understand that there will always be bad news and good news in the market.
Some people panic when they hear about a piece of bad news, and they start selling immediately. If this is you, then you should study how value investing works. Value investing for beginners can be an ideal strategy, especially if you’re the kind of investor who panics easily when the market goes against you.
Value investing is all about buying stocks for less than what it’s worth, which happens when investors panic and sell. The point is that you shouldn’t act on impulse whenever you hear bad news about the stock you bought. If your fundamental analysis says that what you bought is undervalued, you should hold your stocks no matter how bad the news is.
- Chasing After Hot Stocks
You must understand that when you chase after stocks, you’re making a big mistake. The reason is that the market can be very unpredictable. You don’t know what will happen to a hot stock in the future unless it has an impeccable record of being on top throughout its history (which rarely happens).
Newbie stock investors usually chase stocks already on the top because they’re not aware that the stock they bought has already reached its ceiling price. When this happens, investors who bought on top will either hold and hope for the price to continue going up or just sell and accept the loss.
If you want to make money in the stock market, just understand that you can’t always chase after hot picks. It’s best if you choose stocks from industries that you know and fully understand.
- Not Understanding The Importance Of Using Stop Loss Orders
Stop loss is when you set and place an order to sell the certain stock you bought when it reaches a certain price. You may use this to control the risk of picking bad stocks and being liquidated when the price drops drastically. Sticking to your stop loss will help keep your losses small.
- Getting Into Penny Stocks Without Doing Research
Penny stocks are investments that have a meager price per share. But some investors get into it thinking that it might be undervalued or they might strike it rich. This is a big mistake because most penny stocks are very risky and don’t offer anything of value for investors except losses. Some penny stocks become very valuable in later years, but it doesn’t happen all the time. Unless you’re experienced and knowledgeable enough in the stock market, it’s best not to get into penny stocks.
- Trading Too Much And Paying High Fees
Over-trading is common for most investors, primarily those who are new in the market. Some still think that the more they trade, the more money they could make. This is actually a big mistake. You have to remember that the more trades you make, the higher your costs would be in terms of commissions and other fees. Furthermore, the more position you take, the more risk you’ll make.
As a beginner investor, it’s best not to trade too much and just stick to buying stocks that you can fully research and analyze. Only enter a trade if there’s enough confirmation. The fewer the number of stocks you have, the easier it is to focus and analyze each winning and losing trades. Remember that opportunity is abundant in the stock market, and it’ll never run out.
Stock investing can be profitable only if you know what you’re doing. It’s not hard to get into the stock market, but it does take some time and effort for you to learn how to do it properly. There are a lot of pitfalls in stock investing, so you have to be careful. If you don’t want to commit these common mistakes, it’s best to study how the stock market works.