It takes more than a trained eye to be successful in investing. Even the most financially savvy individuals still make mistakes when it comes to putting their money in investment vehicles in an effort to build their wealth. However, if there's one thing time can help us with, it's allowing us to witness the awful consequences of money mistakes people commit. We've seen countless cases of millionsaires and average investors alike lose all their money in a blink of an eye. After all, the stock market is a very tricky playground. Like all playgrounds, if you play without care, you're doomed to crash. Here are three major mistakes that cause people to slip up when it comes to playing in the stock market.
You have a problem if you are calling your stock broker once or twice an hour and looking at websites for minute-by-minute updates of stock values and the latest stock chart. You read a lot about stocks and you're convinced your knowledge and instincts will help you pinpoint where the market is going and what stock to buy or sell, so you engage in frequent trading. Little did you know that in doing so you would have incurred so many transaction costs associated with every trade such as taxes and contracts, bid-ask spreads, etc. This only wastes your time, energy, and most importantly, money. It's still better to buy a stock, wait, wait a little while longer, and sell. So relax and be patient.
While trading stocks frequently is often a mistake in investing, so is holding on to it for too long. Despite the best investor in the world, Mr. Warren Buffett, has practiced this concept all his life, sometimes holding a stock for too long is not a wise move. It becomes more of a "pride thing" than an educated investment. For instance, when you bought stock A, you though it was going to increase in value over time. However time has passed and the market has proven you wrong. You are now at a dilemma; should you sell the stock at a loss, you will have to admit to yourself of your wrong judgment. If you decided to stick to the stock expecting things would turn around, there's a big chance you will lose all your investment. In the world of investing, no one cares about your pride. So should you. It's always better to cut your losses while they're minimal than to hold on to your pride and hope for the best.
Being afraid to invest during bad times
The economy always moves in cycles. In fact, the word always in the previous sentence describes another sentence just for the sake of stressing the word further. Moving in a cycle means that bust years are followed by boom years, and vice versa, all the time. Knowing that bad times will inevitably be followed by a recovery period and then an expansion period, there's no reason not to invest during this current recession. In fact, there are more bargain investments in leaner times such as this one, so staying out of the stock market playground can be a huge mistake. Remember that an economic downturn is a great investment opportunity. Grab it while it's hot. Do not be discouraged when things are in the rough, and do not be influenced by the crowd. Understand that things are bound to turn around sooner or later. GP