If you want to learn how to invest in stocks the right way, then it’s equally important that you also learn the most common investing mistakes that new investors make.
I’ve researched and compiled 8 of the most common investing mistakes. Most people commit these mistakes over and over again without consciously realizing it
The sad part is that most don’t know how to avoid them because they haven't visited companies like Som Visao for advice.
If you’re one of those people, then this article is just right for you.
Luckily, there's a stock market service I use which I strongly recommend that can help you solve this problem (more on this later on).
But first, let’s first discuss what are these these 8 common investing mistakes. If you’re serious on how to become a better investor, then read on.
# 1 Trying To Think That Timing The Market Is Easy
Okay so let me make myself clear, market timing is possible. In fact, it’s one of the ways traders make money. But the fact is that it is SUPER DUPER HARD to consistently make money in this way… unless you can travel through time to accurately predict the future.
Try to talk to a professional trader out there. Instead of asking about their gains, ask about their losses and they’ll tell you VERY interesting stories on how most of the time they are right and wrong.
To time the market, you need to be well-trained. To consistently make money, you should always buy at the support and sell at the resistance. To do that, you need to be knowledgeable about technical analysis.
But if you’ll study the investing philosophy of Warren Buffett, I think that having the patience to buy stocks of wonderful profitable companies and hold them forever is much more rewarding than trying to attempt to time the market.
#2 When You Let Your Emotions Dictate Your Investment Decisions
When your emotions start to dictate your ability to make sound investing decisions, then you have a problem. The picture above (Fig. 1 ) describes what emotional investors go through on their investing journey.
When optimism and too much excitement is felt, the urge to buy stocks is felt. Investors then tend to buy stocks when they are at peak prices and thus exposes them to significant amount of risks. This is the time when investors tend to be GREEDY.
When the market corrects, FEAR sets in. Investors become desperate and panicky. Before you know, this is where investors cut their losses.
The cycle just repeats itself.
As a value investor, you should do the opposite. Instead of buying at the top, why not buy at the bottom and sell at the top. It’s very common sense actually but it’s not a common practice.
#3 Failing To Study Your Long-Term Investments Regularly
If you’re holding a 10-stock portfolio, there’s a chance that some will take the lead while others will be left behind. The result is a mediocre portfolio and you’ll be left wondering why your friend who holds a 3-stock portfolio has performed better.
Professional money managers advice that you should check your portfolio regularly. Re-balancing your portfolio by top slicing your gainers and averaging down to your losers will keep your portfolio balanced.
As long as you hold profitable undervalued companies, averaging down is the best thing that you can do. Of course, that is if you’re a value investor and the stock you’re holding is undervalued.
The most important thing to remember is to make sure that every stock you hold still makes sense to hold. If you think that one of your stocks has become overvalued, then it’s time to sell. Use the funds you raised to look for other wonderful companies to buy.
#4 Trading Too Much That Results To Paying Too Much Fees
If you constantly trade, you also constantly pay transaction and commission fees whether you win or lose. The amount may be negligible but when you pile it up, you’ll be surprised to see how huge it is.
If you trade to often, it will also greatly affect your returns.
Also take note that some mutual funds have high fees so before investing in it, make sure that the fees makes sense because even a small increase in fees can have a significant effect on wealth building over the long-term.
As a value investor, you should practice the virtue of PATIENCE. Avoid trading too much. Just let time and compounding do the work and make sure that your investments are on the right track and that’s it.
#5 Buying High And Selling Low Instead Of The Opposite
This what happens when emotions of FEAR and GREED takes a hold of you. If stocks go down, you sell. Why? It’s because you’re afraid of your portfolio losing value. Fear takes over.
If stocks go up, you buy. Why? Because you don’t want to miss out on the opportunity to maximize short-term gains. In short, you become greedy.
The fundamental principle of investing is to buy low and sell high but instead most investors do the opposite.
As a value investor, you should only focus on long-term investment goals and are not distracted of the near-term returns.
#6 Short-Term Or Long-Term: Unclear Investing Goals
These 3 things will make your investing goal crystal clear;
- 1A fixed and constant investing strategy.
- 2A balanced portfolio (re-balance necessary).
- 3An objective (your plans on the wealth your trying to build).
If these things aren’t met, then your investments will have a lesser probability of success.
Most investors invest without a concise investing goal. A year passes, two years… three years, and yet when you analyze their performance, they still remain on the same spot when they first started.
They start long. When a latest investment opportunity gives focus on maximizing short-term investment return, these long-term investors become short-term speculators.
Instead of focusing to create an investment portfolio that has a high probability of achieving their financial goals, they become too obsessed with achieving short-term results.
So what should be done?
If you decide to become a long-term investor, then you shouldn’t speculate on the short-term. It will just distract you and force you to do portfolio modifications. However, looking at the short-term factors that has a great effect on the long-term performance of your investments is what you should learn to do. So focus!
As a value investor, you should focus on having a clear investing goal to prevent yourself from straying away from the right course.
#7 Totally Unaware Of Your Investment’s Performance
Ask a bunch of newbie long-term investors the reasons why they bought the stock they own and you’ll find answers such as;
- 1My friend told me so because he said it’ll go up.
- 2I bought it because the company is expanding.
- 3The stock is going up and I don’t want to be left behind.
It is interesting that most investors have no idea of the performance of the investments they own and yet, they know every single features of the latest smart phone that they own.
It’s the same when it comes to stocks.
Do you want to buy a smart phone without knowing if the features will suite your needs? You don’t right? When it comes to stocks, people just buy without knowing everything about it; whether its fundamentals or technicals.
As a value investor, you have to keep track of the overall portfolio performance and compare it to inflation. This is one of the simplest way to determine if your investments are performing mediocre or above average.
#8 Not Being Able To Diversify
Warren Buffett isn’t a fan of diversification as stated in one of his quotes.
Diversification is protection against ignorance. It makes little sense if you know what you are doing.
But according to him, if you don’t know what you’re doing, then diversification is required.
Wide diversification is only required when investors do not understand what they are doing.
Professional investors believe that the only way to provide appropriate levels of risk and return in various market scenarios is to create a well diversified portfolio of stocks and fixed-income securities.
Diversification should be a balanced thing. Too little and you become largely exposed in one security. If it goes south, then you lose. Too much on the other hand will give you mediocre performance.
As a value investor using diversification to minimize risk, you should find the right balance. Not too much and not too little but still making sure that it can give you above average returns.
How To Avoid These Common Investing Mistakes
To avoid these investing mistakes, one advice I could give is to study the markets and the investing principles of the greatest investors who have been there and done that. As an example, Ben Graham and Warren Buffett.
By learning their ways, you slowly become to think like them and you learn how to invest like them.
But if studying the markets by yourself puts a lot of work for you, then look for a stocks recommendation provider that has the ability to solve your problems about investing in general.
It should have long history of good track record to gain your trust.
Finding these kind of services is not hard anymore because the Internet has made it possible to search these services easier than before.
Luckily for you, here’s one service I use and I believe that can ultimately solve all these common investing mistakes. Take a look at PinoyInvestor.
How PinoyInvestor Can Help You Solve These Investing Mistakes?
PinoyInvestor solves all the mistakes I mentioned above. You don’t believe do you? Well, first let me show you some proof.
If you believe in market timing but don’t have the ability to chart your way in it, then consider taking the professional advice found on the Technicals Talk. Let’s look at the Free Technicals Talk of MWIDE dated August 10, 2016 by First Metro Securities. (click to see the report)
When the report was released, the report recommended to buy at current prices (P11.68/sh.) or on a return move to trade the breakout.
On September 9, 2016, MWIDE’s price went up to P15.80/sh. That’s a whopping 35% gain in just over a month.
Assuming you followed the recommendation and invested P100,000, you would now have gained P35,000 if you decided to sell.
So what did it solve?
- 1It made market timing sound easy because you didn’t exert any effort on you part. You just followed a professional stock advice from First Metro Securities.
- 2This report guided you to buy low and sell high to maximize short-term gains.
- 3You were made aware of the possible short-term price movement through technical analysis.
As you can see, it made trading much easier.
Now here’s the fun part, if you’re a long-term investor, the Stock In Focus reports contain the much-needed information you need to decide if the stock is worth buying or not.
Let’s look at the Free Stock In Focus report dated November 20, 2015 by AB Capital Securities. (click to see the report)
On November 20, 2015, CEB closed at P84.40/sh. It was recommended as a BUY at a target price of P101/sh. If you bought it during that time and continued to hold until August 19, 2015 exactly 9 months after the report has been released, you would have gained a total of 45%.
Assuming you invested P100,000 peso in this stock last year, your investment is now worth P145,000 pesos today.
So what did it solve?
- 1Since the company fundamentals was laid out in the report, your investing based on emotions is prevented.
- 2You were made aware of CEB’s performance and it helped you decide to invest in it.
- 3Since you don’t believe in market timing, you opt in to follow the Stocks In Focus reports and even though it took your portfolio 9 months to increase value, it’s still worth it.
Now how about if you have large capital and want to allocate it in a well diversified stocks portfolio?
PinoyInvestor has just the right solution for that. By getting advice in the Special Reports and Performance Reports, you can have an idea of which stocks to buy to build yourself a portfolio that has the potential to gain above-average returns without spending too much time and effort in your end.
Let’s look at this Special Report from RCBC Securities dated February 21, 2016. Now I want you to take a look at this Performance Report dated July 24, 2016. If you followed the advice in the first report, you may now have gained 18% in just 4 months.
Another example is this Special Report from AB Capital Securities dated January 27, 2016. Assuming you followed the recommendations mentioned in this report, you would now have gained 30% in 9 months as reported in this Performance Report.
These case studies are just one of the many examples which proves the REAL benefits that you can get in a PinoyInvestor premium subscription.
If you’re just looking for quality FREE advice on what stocks to buy and when to sell, then consider the FREE reports available in PinoyInvestor.
You can always stay as a free member. But if you want to get access to all of the quality reports, then the premium subscription is the right solution for you.
The premium subscription for PinoyInvestor starts at P699/month but if you’ll take advantage of the Best Value Plan worth P4,799/year, you’ll effectively cut your costs down to just P399/month.
If you have any questions or need help in signing up, you may kindly leave a comment or send me a message using the contact form below. I’ll answer your queries as fast as I could.
No matter how valuable and effective the strategy and tips you get from the investing gurus and subscription based investing newsletters like PinoyInvestor, you would still commit these common investing mistakes unless you learn how to really focus on your goals.
It’s very easy to get distracted with your emotions, the market’s shortsightedness and things that’s out of your control and thus lose money.
However, if you focus to a longer-investment horizon and follow a value investing philosophy, then I bet you’ll be able to accumulate wealth and increase the chances of being financially free in the near future.
P.S. Still confused? Why not try PinoyInvestor for FREE and see for yourself!