5 Invesment Mistakes to Avoid

Good investment can save us huge amounts of money in the long run. One of the main investment mistakes we see results from investors not determining their level of risk and the type of investment.

Diversifying your investments will make your overall portfolio less risky and buy you peace of mind. As human beings, we are emotional, impressionable, and often a lot less savvy when it comes to investing than we think. That can spell disaster for portfolios.

Investment mistakes

Stock Markets was not a great place to invest in the last two years from Diwali 2010. There are a host of economic and non economic issues like Eurozone Crises, India high inflation rate, high interest rates, corruption and low earnings show by chunk of Indian companies resulting in lower than expected GDP rates.

Nifty has lost more than 15% in last two years (earlier lost close to 25%, but now recovered). There are some sector specific stocks especially the real estate stocks which have lost more than 50%. But this doesn’t mean that you must stay away from your investment in stock market. Many people who went bullish on their investments in 2009 have made loads of money from this stock market.

Top 5 Basic Investment Mistakes which One Must Avoid in Stock Markets

Don’t Buy a Stock Because it is Cheap

Currently we are in a sideways or down trending market. A lot of stocks have got beaten down by more than 50% whereas Nifty has fallen just by 15%. But this doesn’t mean the beaten stocks are the best value picks. One must realize that price of the stock when picking stocks.

Trying to time the stock market is always tempting, and almost always doomed. Even the best investors can’t get it right consistently, so most don’t try.

It is rather the valuation of a business that determines how much you should pay for the business or for that particular stock. One must also keep in mind that penny stocks are an easy target for stock traders to manipulate since there is low ownership and low market cap. These stocks may fall like nine pins once these operators start pulling their money from these penny stocks.

Don’t Behave Like a Stock Trader

The very first question which you must ask yourself before buying any stock is that “Are you a trader or an investor” Many investors are ready to hold a stock for more than 5 years when they buy it. They do fundamentals and they buy a stock once they are convinced about the business model of the company or the stock.

But once they have bought the stock, they would keeping on checking prices of that stock after every hour to arouse negative or positive feelings about the stock in their mind. And many a times, they would become a trader once they see their stock price falling. Just keep in mind that the rules are totally different if you are looking to buy a stock for a month or if you are looking to buy a stock for more than 5 ye

Avoid the Panic Strategy

The stock market has its nature to be volatile. Many investors get nervous when there is a sharp fall in the prices and more so when blue chip stocks also fall. One must not take hasty decisions against short term moves in the stock market.

There is no need to panic and sell your investments in stocks at low prices as the valuations of the stock might have become cheaper as the prices of the stock fall. We can easily see that in March 2009, when Sensex touched the levels of 8500, it bounced back pretty fast and by November 2009, it was close to 16500 levels.

Define an Accurate Asset Allocation Strategy

One most important thing to notice is that one must stick to his asset allocation strategy. If you are aged 40 and you have Rs 100000 to invest and you call up your broker and ask him to purchase 1000 stocks of Rs 100 each without knowing your risk appetite may backfire you.

The objective here is to minimise risk so that you have almost 1005 chances not to lose your investment capital atleast. Like for example, a person aged 40 should consider an asset allocation of around 50% in equity funds, 40% in fixed deposits and remaining 10% in gold funds

Buying on Your Friend’s Recommendation

If India has a population of 125 Crores, atleast 1 Crore people either from financial or from non financial background would call themselves stock picking experts and many of them are your own friends. Just reading markets, watching it on business channels for past one year doesn’t make or your friend a stock expert. You are always recommended not to buy stocks on your friend suggestion until and unless he is a top notch financial analyst with an equity firm.

Conclusion – Investment Mistakes to Avoid

Investment mistakes are inevitable, but over a period of time, you will be able to recognize the good vs bad. Your first investment is never planned. You have greed, fear, emotions, ego in your mind while making your first investment. These are the elements which make your investments fall in Stock markets. Manage them well and you’ll do better.

One of the most important things that hedge funds can do when marketing themselves is have someone to market for you, whether it’s someone inside that is a dedicated marketer or a third-party marketer or someone along those lines.

Many investors, especially seniors, are not aware that they could be creating unpleasant federal income tax situations that could easily be avoided with a little bit of knowledge and some proper planning. The financial markets generally are unpredictable.

So that one has to have different scenarios.The idea that you can actually predict what’s going to happen contradicts my way of looking at the market. Successful traders abide by this philosophy by heart. Markets truly are random and no one knows where, when, and how prices will move. The key is to be ready for every scenario that can happen so that you can take advantage of the opportunities that lay ahead.

Read more on this at Common Investment Mistakes to Avoid

About the Author

Vaibhav Sangli is an MBA Finance who loves to write on several topics including insurance and mutual funds and finding out different ways to earn and spend money.

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