If I only knew the ways of getting poorer I will simply avoid them and make money. The same simple logic is applicable in stock market investing as well. In this article we will discuss various ways in which one can loose money in stock market. The objective is to make my readers aware about wrong ways that can make one loose money in stocks so that the same can be avoided in making investment decisions. It is a more defensive way of investing money but let me tell that it is very effective. Once my guru old me that “If you only you how to die, you find ways of living longer”.
There is a famous saying of Warren Buffett which says, in order to make money in stock market, too many decisions is not require. Only if we can avoid those silly mistakes of stock investing we can make more money even compared to so called experts.
So lets see top 10 ways of loosing money in stock market:
(1) Doing ones own stock research is not necessary
The biggest mistake that lay investors do is buy stock simply on basis of advice of others or even worse, by listening to rumors. I ones hear my friend telling people to buy Reliance Industries stock as the rumor was that it is set to touch Rs 1400 levels in days. At that time Reliance shares were already trading at Rs 1050 levels which in itself was too overvalued. Believe me that whenever you hear any rumors rumor’s about stock purchase always remember that this is a intentional strategy to influence the market price of that stock.
(2) Trading and Investing is one and the same thing
How often I have heard people saying that they will buy today and sell tomorrow for profit. Contrary to this bad investing psychology, experts say that stock market investing is a long term investment option. So why we want to buy stock today and sell tomorrow? This is fallacy that has been built in our mind by non-experts. Always buy stock will aim of holding it for a lifetime.
(3) Buy stock when stock market is bullish
This is one mistake that majority of novice investors do, they buy stocks when market in buoyant, and sell when mood is negative. Master investor like Warren Buffett bought stocks in 2009 when everyone else was selling stocks. So the trick to make money in stock market is buy when everyone else is selling. Forget your TV news channels and so called
(4) Buying stock without doing fundamental analysis
When people buy stock without doing fundamental analysis they are more likely to sell then going gets tough. Suppose you have bought stocks of company X on advice of others, means you do not know its strength and weaknesses. Immediately after buying that share the stock market crashes (as in 2009); it most likely that you will panic. As you do not know the strength of the company, you will not be able to judge long term prospects of comply. Suppose the company X is Microsoft, even though stock market has crashed like in 2009, but companies like Microsoft will not go down in drain. They will continue to dominate the market irrespective of any bad news. So actually when you should have bough few more shares of Microsoft, an uninformed investor will end up selling what he is holding. This is a big mistake. Learn the concept of fundamental analysis of stocks.
(5) Holding to on to stock without reviewing its value
Warren Buffett says that one shall buy stocks to hold them forever. But when he said that he never meant to say that one shall hold on without reviewing them. If a stock is overvalued one shall sell them for sure. How to know if the stock is overvalued. The easiest way is to look at their dividend yield or earning yield. If Dividend yield is less than 2%, then it is a big hint that stock you are holding is overvalued. You must sell them.
(6) Penny stocks are undervalued
There is a difference between low price stocks and undervalued stock. Untrained investors often confuse these two concepts. Penny stock are those stocks whose market price is very low. But in order to understand if this stock is undervalued or overvalued at that market price one must know to do stock valuation analysis.
(7) Buying stock which are trading at 52 week lows
This may sound simple but even best of investors often get caught in this stock if their news are not updated. It is true that if a stocks is trading at 52 week lows then it is a good hint that it may be trading at undervalued levels. But this is not a fool proof analysis. A stock may be trading at their all time lows simply because their business fundamentals are too weak.
(8) Stock is a piece of paper, just focus on its market price
When one is buying a stock he is not only buying some certificates, but those certificates represent proportional ownership of a company. So stock make you a owner of a company. One will never want to become owner of anything that is going to make them loose money in long term. So focusing on only market price while buying stock will make you understand is the company is profitable (in long term) or not. So again, learn to do fundamental analysis of stocks.
(9) Buying too many stock means diversification
Randomly buying stock does not mean that you are diversifying your stock portfolio. Buying stock of unrelated stocks (like stocks of different sectors) will make your investment portfolio completely diversified. Life on one hand you are buying auto stocks and other side you are also buying beverage stocks, this is diversification.
(10) Taking too may opinions before buying stocks is a fool proof solution
Stock investment is an art and you know this well that not many people in this world are artists. Only few gifted people who have learnt the trade of stock analysis can be called as artists in field of investment. So learn and develop your own way of stock analysis and do not be dependent on other advice on stock picking.
If one wants to loose the belly fat, he should better know why in first place he gained those extra fat accumulated in his belly. This is the first step, next will be to avoid those reasons of fat accumulation in future that itself will solve 90% of his problem of belly fat. Investment is tough for those people who does not know what to follow and what to avoid. In this article we have made your aware of top 10 ways in which one can loose money in stock market. Just avoid these and you can stay assured of your success in the artistic world of stock investment.