7 Mistakes of Investing
1) Investing without a plan
Before investing, You need to know the purpose of investing. Are you Investing retirement? Or for Kids education? Or just to create monthly cashflow to supplement your income. Your investments will change for each option and how far you are away from your goal.
2) Timing the market
I never get tired of saying why timing the market is a bad idea. Even Warren buffet, the man who spent all his life couldn’t time it, He was heavily invested in Oil and airlines stocks which are tanking now. I like to quote Warren buffet’s quote here.
If you are not planning to hold a stock for 10 years , don’t even plan to hold it for 10 minutes.
3) Leveraged Investing
Investing with borrowed money or Investing when you have non-mortgage debt. Your investments might or might not make you money but your debt is guaranteed to cost you money. First time I invested , Broker adviced me to make all purchases using credit card and invest cash I had for monthly expenses. Investment went down, I had to pay hefty interest on my credit card balance. Lesson learnt a hard way. Recently, I know a couple who thought they could double their downpayment by investing in oil ETF: UCO last week, lost 70% of it.
4) Trying to catch a falling knife
This is the term used to define a pattern, where people try to buy the stock just because it fell 50%, with the hope that stock will raise back the next day. While there is a chance for that, there is also a equal chance for it to crash further. Unless it is your recurring investment , it’s never a good idea catch a falling knife.
5) Exiting investments when the stock goes down
When market crashes, it causes panic and people make bad decision when they are in panic.
When I started investing, I did the exact mistake and lost much more money than my friends who hold on to them. Only people who are hurt in the rollercoaster ride is the one who jumps off it in the middle. Main reason people do this is because of the next mistake.
6) Monitoring the investments every day
Stock market investments are for the long term. Monitoring it every day is going to make you nervous and will make you make bad decisions. Just like you wouldn’t monitor the price of your house or jewels or car everyday, Don’t check it’s value every day. And also stay away from Screaming stock market channels who will be either in two mindsets. The entire world is crashing, we are all doomed or buy this stock with everything you got.
7) Buying the stock without research
There was never a week without someone reaching out to ask if they can buy “X” stock. People buy some unknown stock because some website said it’s going to moon or some friend of them said it’s good. Most of the time, you hear about the good news about a stock, it’s too late, It’s price factored in the good news already or there is other bad news that did not reach you yet. Never buy an individual stock because someone said it’s good or you personally like the company.
I have made almost all these mistakes and I learnt from it. But life is short for you to attempt to make all these mistakes yourself. We need to learn from other mistakes.