It happens to almost everyone at some point in their lives: You’re at a party, and your colleague is suddenly bragging about his newest investment venture. He’s talking about a long-term investment that will instantly double his money without any effort.
And there you are, casually sipping your wine, thinking how clueless he is about the company he invested in. You begin to feel complacent knowing that he is guilty of at least five investing mistakes.
Let’s discuss the most common investments mistakes committed by many people so that you can avoid them.
Getting too attached to the company
Often, when a person sees the company he invested in, it’s easy to get too attached or fall in love with it. As a result, they forget the primary reason why they invested money. It’s critical always to remember that you bought stock to earn money. If this isn’t the top reason you’re investing in a company, you might need to reevaluate your actions.
Not learning about the company
The rule of thumb is that you need to know as much about a company before investing in it. Make sure to understand what you’re putting yourself into. Generally, if things are too good to be true, then it’s time to reevaluate your decisions.
If there’s one thing that you need to be cautious about, it’s investing in companies with complicated models. The ideal way to avoid this is by building a portfolio. For instance, if you’re investing in individual stocks, take the time to understand each corporation that the stocks represent thoroughly.
For instance, if you’re planning to invest in a company supplying air compressors, pneumatic linear actuators, or hydraulic systems, it’s vital to know how valuable these things are to the market. In most cases, these systems are beneficial to the manufacturing industry, so go ahead and research the current status of the said industry.
A lack of patience
Earning money from your investment takes time. It’s relatively the same as opening a business, but the difference is that you don’t have to do all the hard work. The money you invested needs to grow. You can’t expect to earn at least 50% of it overnight.
Overall, knowing the right time to put money in and out is just as vital as being patient. Make sure to keep your expectations realistic and wait for the funds to grow and earn.
Excessive investment turnover
Excessive investment turnover results from a lack of patience, and it’s another investment return killer. If you haven’t mastered how investing works yet, it would be best to minimize your investments to a number you can monitor.
Too much investment turnover can cost you more in the transaction expenses, and you may even miss out on a lot of long-term opportunity costs. To avoid this, learn the basics of investing, find out when to invest wisely and when to pull out your money to prevent loss.
Timing the market
Successfully timing the market rarely happens. And if it does, it usually happens to seasoned investors only, those who know the accurate movement of the market. What is market timing? It’s the act of transferring investment money in and out of the financial market. Market timing is also the act of shifting funds among asset classes- based on prediction.
Not all investors can predict the actual movement of the market or when it will go up and down. So don’t even attempt it if you’re new to investing.
Not realizing a loss
Investing is a risk. There will be times when you earn more than you anticipated or lose all your money at once. It’s important to acknowledge the loss to ensure that you don’t lose more money in the process.
Another term for this mistake is when a person is “trying to get even.” This method is practically about waiting to sell a losing stock until it returns to its primary cost basis. It’s also a practice where the person remains further before selling stock until it becomes worthless.
“Do not put all your eggs in one basket.” This is a famous phrase that all seasoned investors always have in mind. To avoid too much loss, you need to diversify your investments. What does it mean? Diversifying your investments means allocating money to various acquisitions. Ideally, avoid putting more than 10% of your money in one investment only.
Being too emotional
Letting your emotions get in the way as you make investment decisions is a big mistake. Doing so can make your judgment, or worse, force you to make impulsive decisions. Avoid being greedy, and don’t ever let fear get in your way. As mentioned, investing itself is a risky game. You have to learn to box your feelings so that they won’t affect your judgment.