Investing in stocks can reward you with great profits, but can also lead to huge losses. In most cases, common mistakes are what lead to the losses. They are what separate the successful investors from the poor ones. Even the most experienced investors can still make some mistakes, as it is impossible to be perfect. However, with knowledge of the common mistakes to avoid, you can easily avoid going down the path of losses. Below are some of the mistakes that you should avoid.
Investment mistakes to avoid
Making use of too much margin
Using margin simply means using borrowed money to buy the securities. It is a great idea as it can help you make more money in relation to your investment amount. On the downside, it can also exaggerate the losses that you make by the same factor, in case the investment does not work out for you. Consider using margins only if you would use your credit card to buy the stocks, as it is technically the same thing.
Using margins will also exaggerate the losses and gains over small movements in price. This will require you to monitor your positions a lot more closely, which requires more time and knowledge. You will have to make decisions that are a bit more difficult compared to working without margins.
Using unfounded tips to buy
This is a mistake, which almost every investor has made at some point in his or her investing career. There are always rumors, tips, and predictions about stock movements from friends, colleagues, media, and online, some of which can be quite enticing. You should not get your broker to make moves based on such rumors they may not necessarily pan out for you. You will simply be gambling based on speculation if you choose to follow the unfounded tips. If one grabs your attention, make sure you consider the source and research to confirm the validity of the information before making the next move.
Buying stocks that seem cheap
Many people often buy stocks that have a fallen share price, as they seem to be cheaper than usual. For example, a company’s share price that has fallen by 35% within the last one year will appear to be a good buy. You should only invest in such after doing a careful analysis of the reasons as to why the stocks fell. Simply because the stock prices fell in the past year does not mean that they will rise this year.