Is this the year you stop smoking, start running marathons and investing? Well, I can help you with only one of those. Investing in the stock market (I prefer to call it investing in value companies) can be a long and slow process, so don’t make these early and avoidable mistakes. It’s a great thing to start investing and the only time you shouldn’t do it is tomorrow. Get started today with these pitfalls in mind.
1. Do your due diligence. Investing isn’t guessing. This bit of advice is so good you should learn needlepoint so you can embroider this one and hang it above your bed. It takes research and knowledge before putting a single dollar down. An investment is only your best “guess” after doing a lot of work.
• You can’t just put some money down and hope for the best. The information is available, so you have no excuse not to find it and use it.
2. Expecting overnight returns. Your investments are meant for long term, and long-term doesn’t mean two weeks later. Plan to make small but consistent moves over the long run.
• Don’t listen to the so-called “experts” who claim they know how to achieve consistent huge stock returns. They also try to sell you winged pigs. Neither of those items are worth your time.
3. Listening to the news experts. Anybody in the public eye has a certain amount of liability attached to their advice so they wouldn’t give you advice with your interests at heart. Take their investment plans with a grain of salt and a pound of your own research.
4. Listening to anybody else close to you. You might like to hear Uncle Jack’s rib recipe, but you shouldn’t listen to his stock market tips. Everybody has their own opinion, but it’s not worth much.
• Impulsive investments based on flimsy advice aren’t worth the time. Trust your own research because it’s your own money.
5. Holding on far too long. At one time or another, every investor has said, “It can’t go any lower.” The economics professors call this a “sunk cost fallacy”. You’ve invested, so you should just hang on a little longer. It becomes tempting to think “Well, I can’t throw it in now, what if it rebounds?”. Never be too proud to call it quits if you need to.
6. Selling before it’s time. If you see a rise in the price, you might want to grab that rise. But again, it should come with a grain of salt and a pound of research. If you believe that it could reach up higher, wait it out. It’s not uncommon to see stocks can reach 100 fold returns, so that paltry 20% rise would seem insignificant if you’d only researched and waited.
7. Investing without a plan. If you’re investing just because you had a whole boat-load of business cards printed with “Day Trader” as your profession, that might not be the best reason. Plan out what you want to do with your investments, and it will help plan out your strategy.
8. Failing to monitor your investments. Your research isn’t ever done. Never ever. Keep on top of what you’ve put your money in and watch its returns carefully. Examine if the price is lower or higher than expected and manage it accordingly. Imagine your investment is like giving your 9-year-old a job to paint the fence. Unless you’re keeping an eye on it, you could find yourself the proud owner of a huge mess.
Stocks change, prices rise, and fall and new strategies and plans come out every year by the management. The only consistency in the stock market is the mistakes you can make. Take the risk out of your initial investing and watch out for these devastating pitfalls. This is the reason why my team meets up every week. Yes, we discuss our individual findings of the target company we wish to invest in, but mostly we indulge in food and share life stories while we’re at it.
Hope this has helped you and do remember to share it with your friends. Happy weekend folks!