Top 5 Mistakes by New investors

                     

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Stock Market is a place where people buy and sell shares. It is the place where very few make fortune, and some lose their savings. We all have read the stories of big investors who earned a lot of money in particular stock, but we fail to see the efforts that big investor put to identify that stock. Hence, there are very common mistakes done by almost all first timers in the market and unless we learn from those mistakes, it is impossible to make money in stock market.

Today we are going to talk about top 5 mistakes committed by New investors who come to stock market to make money. Common people have emotional attachments with the money; therefore, they fail to take rational decisions when it comes to stocks.

Let us look at these common mistakes: -

1.      Buying on recommendations: - Specially these investors are very new to the market and excited about how quick money can be made in short span of time, hence their focus is always on grabbing on the opportunity quickly and making money in no time. But does it really happen that way. No, instead they get stuck in that stock. These investors watch business news, rely on tips or friend’s recommendations to identify a stock. They do not take the pain to identity what business the company does or is the company making any profits. They simply put the money in that stock and wait for the magic to begin.

2.      Unrealistic expectations: - The second major reason, why new investors lose money in stock market is that they have unrealistic expectations about returns. As they think stock market is the only place, where money can be doubled in no time.

Well, let’s understand what unrealistic return expectation actually mean. Banks normally give us interest between 4% to 8% yearly risk free, meaning if you invest or make fixed deposit in bank for 1,00,000 Rs, you will earn 8,000 Rs interest yearly considering 8% interest. But When investors get 8,000 Rs return in 10 days, they feel unhappy and expect to double their money in a month, investors become very greedy and hold on to stocks when they are making good profits and when a stock starts falling and turns red, it becomes part of their portfolio for life. Sad, but this is the naked truth about the market.

3.       Trying to time the market:- The third common mistake done by new investors is, they try to time the market, which is next to impossible as nobody knows what is the right time to buy and what is the bottom of the market. But still, new bees take this as a venture to do it on their own. Stock Market is a very volatile place, it needs some skills to identify the right place to buy. Mostly new investors watch business channels to form a view about the market and it backfires them.

4.      Being impatient: - Patience is utmost needed when you are in stock market, there is nothing called make quick money schemes in the market. Sometimes, a stock trades in a range for a longer period, which test the patience of an investor. Volatility affects the common investors and they get impatient as the stock price goes up and down. This volatility significantly affects the investors decisions, they have sleepless nights and scared for losing their money in stock market, this majorly happen as they are unaware and unsure about the company that they have invested in. They have not done their homework before entering in this stock. Hence, emotions take over the logic and they decide to exist the stock in loss.

5.      Unaware about the risk involved: - New investors are not good at making financial decisions. As explained above, they enter stock market to make quick money and therefore, they fail to consider risk involved in stock market. Intention of making quick money in the market leads them to take unlimited risk and diversification of risk is completely ignored. New investors invest huge money in a single stock, the money which they have saved over a long period for uncertain events and as stock starts moving in opposite direction, they get impatient and restless. Eventually exist the stock by taking a hit.

I am sure all of us have been through this journey, which we have discussed. Hence, this becomes more important for all of us to learn from the mistakes that we have committed and make others aware about it, who are going to take first step in stock market where uncertainty and risk is involved.

Please do share your experience, when you did your first investment and how has been your journey so far. To learn more about markets, keep visiting this blog.