Mistake No 1 : The first and biggest mistake is not to admit making a mistake
People stubbornly hold on to stocks where they are making sizeable losses in the belief that they can exit when the price reaches their buying price. Most of the minds are not trained to acknowledge the fact that they have made a mistake and probably the best thing is to move on. Some people who had bought a penny stock at Rs. 9 following a tip and hoping that it would double in a few months. The stock first rose by 20% and then declined by almost 40%. People started unwilling to let go of the position with the belief that they will do so only when the price reaches their buy price and it will happen sometime soon. These people are still holding on to the stock and the stock has lost a further 40%. They could have exited the stock with a loss of just 28% initially (considering the appreciation of 20%). Now their losses are around 56% and they still holding the stock.
Mistake No 2 : Buy on tips and wanting to make a quick buck
Technology has made our lives much easier but at the same time has caused a lot of overload as well. We are subject to SMSes , emails and flyers with lucrative offers for buy and sell tips , commodities trading etc. that at the end of the day leave you confused. In this state only two things can happen, (a) One is that you procrastinate and not take any action with the fear of screwing it up and (b) Succumb to these offers for making you rich quickly.
The point that we are trying to make is that how people who are conservative or sane can take dangerous calls and sabotage their own well being. We remember having met some conservative people who was targeting only 12% returns but still could not resist the stock market temptation when the broker called and showed him some tantalizing figures.
Mistake No 3 : Buying a loser on its way down thinking you are averaging your costs
Mistake No 4 : Ignoring Risk in the investment and looking only at the returns
Risk is an integral part of every equity investment and some equity investments are more risky than others. People however look at the returns without giving due importance to risk. Stock Futures can give you great returns but at the same time they can wipe out your capital as well. In the mutual fund context, people look at returns when investing in the fund, but do not consider the kind of risks the fund manager has taken whether it be concentration in stocks or sectors etc. At the same time betting heavily in Futures & Options, Commodities without understanding the nuances of the same is fraught with risk. Understand the risk i.e the downside inherent in every investment and volatility associated with it.
Mistake No 5 : Buying penny stocks thinking they are cheaper and ignoring stocks, which are priced above a certain number like Rs. 1000 thinking, they are expensive.
Mistake No 6 : Exiting Winners early and sticking to Losers
Ask yourself Suppose you have a choice of 2 boats. Boat A is strong, consistent and has travelled the sea through many rough weathers as well. It is like practice stocks with stock fantasy games. Boat B is showing some cracks and leaks in certain places. Water seeped in through this boat sometime back. Which boat will you choose to safely get me from this shore to the next? I bet all would opt for Boat A and no person in his right mind would opt for Boat B. Yet when this same logic is applied to stocks, people will stick to losers (Boat B) but exit winning stocks (Boat A) to make a small profit.
Mistake No 7 : Just thinking but not doing anything
Finally doing makes all the difference. There is no substitute for action. Just knowing that exercise is good will not keep you fit. In the same vein, just knowing this stock is good is of no use unless you buy it.
We come across so many intelligent people who know many things but are simply unable to implement because of lack of time and busy schedules. We knew this stock would do well, wish we had put in money here or we missed a good time to enter this stock are some common responses you hear. Whatever the reason be, in the end what matters is whether you did what you knew was right. A better option for people here is to put their investments on Autopilot (Automatically investing fixed amounts every month in stocks and mutual funds) or practice stock market with stock market fantasy games.
To be a successful investor and create wealth through equities, you should shun the costly mistakes outlined. This can be compensated by playing BYSOS Stock Fantasy Game , with this you can play, learn and also earn! And yes, if you have made any one of the above mistakes, admit it and correct it. More importantly Stop Hoping. First, learn and then plan to earn!www.bysos.in