07 Apr 8 Common Investing Mistakes and How to Avoid Them
Every investor makes mistakes. No matter if you’ve been investing for decades or only for a few years, you are going to end up falling into the same traps as investors from the bygone days.
But awareness is the first step to correcting your common investing mistakes. The more aware you can be of the common fallacies in the strategy for investments, the more you can avoid those missteps.
Let’s read on to see what are some common investing mistakes to step away from, so you can increase your return on investment year after year.
1. Holding on to Losses for Too Long
Investors have this odd tendency to fall in love with their investments. You might believe that if you show ‘love’ and ‘loyalty’ to the stocks you buy, they will show you love and loyalty back. But there is no such thing.
Stocks are unable to love you back. They are unable to rise faster or give you more profits, just because you love them or are loyal to them.
Don’t hold on to stocks if they are a losing bet. If you want to fall in love with a stock, fall in love with one that’s doing your return on investment well. Fall in love with your winning stocks, rather than your losing ones.
2. Following the Herd Mentality
When you are choosing the best university in your state to apply to, or the best DSLR camera to buy for your son’s birthday, following the crowd is a great strategy. But when it comes to investing, it’s definitely not.
By the time the crowd has heard about and fallen in love with a stock, it’s usually too late. The stock price has risen too high for it to be a favorable buy for you. You would be better off finding some other stock to invest in.
3. Not Diversifying Enough
Not only do investors fall in love with certain stocks, but they also tend to fall in love with certain sectors, and types of markets.
It’s great if you are investing in something you know. But what if you are restricting yourself by investing only in a certain kind of stock?
Diversification is always the name of the game when it comes to investments. Your return on investment might not be as high if you focused all your investments on stocks or into the risky tech sector.
But it will be a much more stable and long-term investment.
4. Following the Advice of the Wrong People
There are a bazillion ‘gurus’ out there, who all seem to know exactly which stocks you should be investing in right at this moment in time. And it seems to change from day to day, even hour to hour.
Don’t let them fool you. Don’t listen to every Tom, Dick, and Harry who has some investing advice to give you. Also, stop listening to your cousins, uncles, aunts, friends, and the guy sitting next to you at the bar.
Focus on getting investment advice from sources that have proven themselves repeatedly in the past, and whom you can trust without a shadow of a doubt. Forget about scam artists and promoters. Now.
5. Investing Money You Can’t Afford to Lose
The main adage of investing is that you should be able to lose everything you have invested and still be able to survive. Is that true for you right now?
If not, you need to rethink your strategy for investments asap. Stock markets aren’t as much a gamble as the casino, but they are still a gamble of sorts.
You can’t rely 100% on gaining a positive return on investment year after year. If you are investing money that you can’t afford to lose, then you are making a common investing mistake.
6. Getting Impatient, Greedy, and Taking Unseemly Risks
No one likes waiting years for a return on investment. Quick gambles and quick profits are what everyone seeks.
The minute you get impatient though is the minute you start making foolish decisions. Patience is the key trait a successful investor needs to have.
Impatient people are impatient because they are being greedy. They want returns right now, and if they don’t get them, they bail to find another investment.
Don’t forget that businesses operate slower than most of us would like to see. Or even expect.
Every time, the management of a company makes an operational change or a strategic change, it takes years or decades for that change to show up in their profits and your stock price. Stay patient and stay in the game.
7. Averaging Down
Stop throwing good money after bad stocks. If you have a stock that keeps on going down in price, don’t buy more of that stock.
This strategy is called averaging down and it’s made by investors who have made a mistake in their long-term investment strategy. Don’t fall into this trap.
If you have a stock that’s doing well, you can and should put more money into a winning stock. This strategy is averaging up and that’s more than welcome! The positive moving price shows you that you made a good call.
8. Not Doing Enough Due Diligence
Whenever you invest in a company, make sure you spend some time investigating and researching the company. Do your own due diligence. Do not rely solely upon someone else’s judgment or research.
Don’t use shallow logic and surface considerations to make your investment decisions. Go beyond, and you will become that successful investor that you wish to be.
Common Investing Mistakes Can Be Easily Avoided Through Awareness
Do you see yourself in any of the common investing mistakes covered above? Don’t berate yourself too much. These investing mistakes are common for a reason.
Now that you are aware of these mistakes though, you can start moving towards removing them from your strategy for investments.
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