For Beginners: Common Types of Stocks Buying Mistakes to Avoid

In case you don’t possess any experience investing on your own, getting started can be rather intimidating.

Investing mistakes are all too common, especially now that most of the globe has gone to a do-it-yourself (DIY) model with everyone from waitresses and doctors expected to become specialists in capital allocation by selecting their own retirement assets and portfolio strategy.

Being perfect may be impossible, but learning some common investing mistakes can help keep you from going down the well-traveled, yet rocky, the path of losses.

Here are some common stock buying mistakes that you should avoid investing to safeguard your returns

Putting all your eggs in one basket

Most people know this old saying. If you invest all of your assets in only 1 fund or security and that investment tanks, your portfolio could be scrambled.

As an alternative, consider diversification. While this strategy doesn’t ensure a profit or assure you won’t lose money, you can better manage risk by spreading your assets among different investments and asset classes. That includes stocks, bonds, and cash instruments.

As some assets fall in value, others may possibly rise or even maintain steady and help neutralize the losses.

Using Too Much Margin

A margin is the use of borrowed money to purchase securities. While margin can assist you to earn more money, it can also inflate your losses, making it a definite downside.

The worst thing you can do as a new trader is become carried away with what appears like free money. If you use margin and your investment doesn’t go the way you planned, then you end up getting a large debt obligation for nothing. Ask yourself if you would buy stocks with your credit card. Of course, you wouldn’t.

As a fresh trader, make use of margin cautiously, if at all. Use it only if you understand all its aspects and dangers. It can drive you to sell all your positions at the bottom, the point at which you should be in the market for the big turnaround.

Thinking short term

Investing for the short-term simply may not give your investments time to potentially grow. This is especially crucial if your ultimate goal is long-term, such as funding your retirement or college or university education for your young ones. For long-term growth, many investment professionals say it’s essential for your portfolio to include stocks.

Short term trading and speculation should be done only if you have perfected the art of when to buy and when to sell using Technical Analysis. Here’s where our “Basics of Technical Analysis” webinar can help. Long term investment will give you even better returns too if you combine both Technical and Fundamental Analysis for your decision-making.

Blindly following “Market Analysts and Money Gurus”

Be aware that what are referred to as experts and market Gurus appearing on your screens are also humans and they do not run the markets, however influential people they may be. Their forecasts as well as assumptions and analysis may go wrong. As mentioned before, markets are challenging and are influenced by a number of domestic as well as foreign factors which at some point are beyond anyone’s control. So do your own research and don’t blindly follow what your favourite business TV channel advised you.

Avoid investing in Penny stocks

Penny stocks can be very risky to invest. Many of the penny stocks become bankrupt and go out of the business. In addition, penny stocks are prone to different scams like pump and dump etc. One can readily manipulate the penny stock prices by buying large quantities of these stocks. Besides, these stocks also have a very low liquidity, so selling a stock if you hold it might be difficult. Overall, if you are a beginner, it is strongly recommended to avoid investing in penny stocks.

Not Analyzing a Company’s Financial Statements

Investing has it’s own “language” — they’re referred to as financial statements, and they represent the financial health of a company.

You have to know how to read and analyze financial statements if you are going to invest in individual stocks for the long term. That study will tell you what’s really going on with the company, beyond public pronouncements and media clutter. It’s a mechanical method and one you should learn, if you’re going to be a serious investor.

Trying to time the market

Very first thing to keep in mind is the fact that there is absolutely no such thing as timing the markets. Markets these days do not stick to a trend that a common trader can grasp or understand. There will be ‘predictions’, ‘projections’, ‘analysis’ and what not but still you as a common trader should not think of ‘timing’ the markets.

For any technique to work, investors must know precisely when to get out of stocks. And precisely when to buy back into them. Always. And that’s where Technical Analysis can really help. Still not convinced? See this ½ an hour video on how Technical Analysis can help you.

Stock market is not a bad place to invest as a lot of you may think. Nor is it a place only for a selected few. It is an investment avenue just like any other, however, you should be a lot more careful and prepared to deal with some sort of loss and stick to your investments in a regular systematic way and avoid these mistakes for investing in shares.