Some investors invest directly in stock markets or through mutual funds, make wrong decisions, suffer huge losses and then start blaming the markets, quit them for good, and go extremely conservative by keeping the money in Fixed Deposits or worse, in Savings Bank. This in my mind, is the recipe for disaster, because if you are not investing in products that beat inflation, then you are losing money every day.
So, what gets people to such a stage that they lose trust in these investments and are the mistakes to be avoided. What are the top investing mistakes? We will discuss some of them.
There could situations where lumpsum money for investment either or on your own when greed sets in and there was also a Fear Of Missing Out (FOMO) in the bull run. Or it could be due to ulterior motives of someone that you had been coerced into making this decision.
A record total of 51 lakhs new demat accounts were opened in 5 months from Mar 2020, during the pandemic and lock down. This can be a disastrous move especially when investments are done in penny stocks to make quick money based on a hot tip in the market. Most of them do go wrong and people lose money. Stock market is good for long term investing based on fundamental and technical analysis. It is not gambling.
There could be biases due to which someone’s investing decisions may get blurred. Biases like recency effect, overconfidence, confirmation bias, status quo bias, etc. We will discuss these in one of our future blogs.
Trying to average out your purchase stocks when it continues to go down because fundamentally there is an issue with the stock. What we are doing in such cases is putting good money over bad money. At times, it become critical to admit mistakes, cut short losses and move on. Catching falling knives can be dangerous!
Not investing in a stock because you believe in it, but investing be only trying to time the market and catch it low.
Investing is long-term and not having patience especially when the markets are down can be detrimental to investing. A stock can be fundamentally good but not performing well when the sentiments are down is still fine. Lot of investors end up buying high and selling low.
Many people invest without knowing or understanding their risk-taking ability. They do not invest with any target. The greed sets in a bullish market, whereas in the bearish market there is no stop loss which is set. Many investors do not want to take losses and they only want profits.
I believe all the above ideas are common sense suggestions which I have observed over a while. Hope they were of any use. Please feel free to adapt or ignore them. I am not an active investor in stock markets myself and whatever investments I have done those are long-term based depending on the fundamental strengths of those companies. I believe in investing through mutual funds myself and for my clients. We should remember that the whole objective of investing is to make money and we are not there to provide a point to anyone. We should know our investing boundaries within which we should invest and then just stick to it.
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