You must avoid these stock investment mistakes in all cases
‘Long term investment’ is of the many investment strategies known to investors that prove very profitable. The strategy of buying and holding the stock for a longer span of time, like five-six years, is one of the most reliable strategies known till date. Even financial and investment gurus has shown great confidence in this style of investment. The logic is simple, invest in a reliable company, and then give it a time to grow, in other words give it time to make your investment grow. The trick is simple, hold your investments in profitable stocks and be quick in realizing bad stocks and disposing it off. Yes, you must dispose off all bad investments even when it means to sell at a loss.
Like Long term investment strategy is a good tip, there are some common mistakes made by investors when they trade stocks. These mistakes are result of ignorance. If you are investing in stocks, it calls for sound financial decisions. If is observed that majority of people buy stocks based on tips form friends, advisors, news channels, news papers etc. But the mistake in buying such stocks is, by the time this news reaches you the value of stock has already climbed. That is one reason it is often recommended to avoid the mistake of following hot tips. A serious investor must learn the tricks of researching the stocks and buying based on his research. The objective is to time the market accurately.
We will also list down few most common stock investment mistakes made by average investors that must be avoided as far as possible. You must remember that investment is a tool that allows you to save your money rather than spending it on liabilities and it allows you money to grow as you are investing on assets. The key phrase to investment is “accumulate assets”.
Being self obsessed with stock market movements
Novice investors have been observed to keep an hourly track of the stock market indices. If they have managed an online portfolio monitor (which is a good idea) they keep themselves glued to their laptop screen to track each and every movement. I am not sure how this is helping them in their cause but I am sure that this may force them to take some wrong decisions for sure. There is a tendency for stock market investors to buy stocks in ‘falls’ and sell in ‘ups’. When investors are unnecessarily watches the prices going up and down on daily basis, they are forced to make some wrong decision during falls and ups. Always try to see the long term behaviors of stock indices and prices in particular. There may be major peaks and valleys on daily basis but in when you will see the performance in a wider horizon (say one year) you will see all good buys showing profits. So tip number one is not be obsessed with everyday performance of indices. Let your investment some free space and time to grow. Think 100 times before you put your money in an investment option, after you have bought a stock, let it grow. If you will buy and sell too quickly then not only you are not giving your investment to multiply but you are also wasting your money by paying brokerage, taxes etc.
Too much diversification for minimizing risks
People tend to diversify to minimize risk. This is a very useful tip to minimize your losses during falls of some specific sectors. But too many stocks in your portfolio can lead to a mess. It becomes difficult to manage. It’s important to understand that your stock portfolio is like a book shelf. The more you stuff the shelf with stocks the difficult it will be for you to manage the cleanliness. It’s always best to keep only as many stocks as you can remember. Try to recall the names of all stocks owned by you. These are the names that you must track to take the advantage of rise and falls. More importantly, these names will make you aware that these are the companies that are your assets. Any major decisions taken by the top management of that company like expansion of modernization planes should make your years tuned. You must become ready to start buying stocks of such companies, so as to become a partner in sharing profits as soon as these projects are capitalized. The point is, if you have fewer companies to track it will be easier to manage. A thumb rule says that you shall not hold more that 20 companies in your portfolio.
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