Common Mistakes You Should Avoid When Investing
NO BASIC KNOWLEDGE
Simply by just starting to trade without prior investment knowledge is one of the most common mistakes by an investor.
Warren Buffett, who is considered one of the most successful investors in the world. Says never invest in a business you don't understand.
Investors who lacks knowledge risk losing lots of money in the stock market. They tend to pay a higher price for the business because they don't know the key figures, or buy and sell shares at the wrong time
LETTING EMOTIONS GET IN THE WAY
The worst decision to invest is based on emotions, and those emotions can come from many places. They can arise from fear of the future. They can come from frustration or disappointment about your main relationships in life. We can come from irrational exuberance over how well things are going right now.
The best investment strategy is one that is viewed with minimum emotion and one that you can stick to in all those emotional highs and lows.
TIMING THE MARKET
It is extremely difficult to time the market effectively. Even institutional investors are often not successful in doing so.
It is impossible to guess when the economy is at a high or at the bottom of a downturn. There is so much day-to-day volatility in the stock market that it is essentially impossible to guess. Of course, pursuing this sort of timing on the market would cause a lot of transaction fees and eat up a bunch of your energy. It's better to invest just with automatic regularity and not switch the savings around.
Timing the market rarely works. Find out more why here.
NO TRADING STRATEGY
There are two main stock-buying trading strategies: value investing and diversification. Investors should create a personal strategy that takes into account their preferences for risk and their preferences for investment. For example, are you looking for high-profit stocks or high-dividend stocks?
Experienced traders have a well-defined strategy to get into a market. They know when to enter and exit, the sum of money willing to invest and the average risk willing to take.
Beginner traders may not have a plan in place until they start trading. Even if they have a strategy, they usually don't stick to their strategy. Especially when greed and fear take over.