Everybody makes mistakes. Which is not so bad, although it’s a pity if you could have prevented them. Also investors make mistakes. Worse, a lot of investors make the same mistakes over and over again. If you know these common mistakes investors make, maybe you can prevent them in the future.
Mistake #1: Invest with borrowed money
It is absolutely unwise to invest with borrowed money. I you make loss (which you will), then you need to repay interests as well as the principal amount. You should only invest with money that’s yours and that you can spare, which will prevent you from getting into financial troubles. If you don’t have any money to invest, try to first save some. Too many times new investors speculate on the stock market with borrowed money and are cleaned out.
A lot of brokers give you the possibility to leverage your buying power, so you can invest more than your own means. Don’t use it when you start investing. Leave this to the pro’s.
Mistake #2: Invest without goals
Investors with a specific goal in mind, are almost always more successful than investors who ‘want to make some money’ or ‘invest for fun’. Investing with clear goals gives you a better chance of gaining higher returns.
Mistake #3: Invest without strategy
Besides an investment goal, you should also think of an investment strategy to achieve your goal. Your system to invest. Choosing a strategy is not something you pick from a menu card, it should fit your investment style. Are you someone who wants is not keen on taking too much risk, then you can choose a more risk averse strategy.
Mistake #4: Behaving (too) whimsical
A good investor is not whimsical. He or she has defined clear goals, uses a specific strategy and sticks too it. Are you someone who likes to change your mind frequently then you should unlearn this attitude. Successful investors have learned the hard way – usually by losing a buck load of money – not to let them mislead by events or opinions of others. They stick to there own judgement and strategy, no matter what happens.
Mistake #5: Having no clue what you are buying
Many investors are buying products they don’t really understand, or even know what they are buying. This has more to do with speculating or gambling than with investing. It’s fine to trade in options, but you should learn what options are, the possible risks involved and what you can achieve with them.
Sometimes great brands are attractive to invest in, however it’s better to really do your homework before getting into it.
Read more: 8 Books Every Beginning Investor Should Read
Mistake #6: Investing without focus
Of course you can invest in several products – some analysts think this is even wise to do – but stay focused. Without focus on a few products, you can easily get lost in too much information. Are you sure you want to invest in ‘all’ products? You might get too much distraction by doing so, which in turn could loose you control over your portfolio. That’s how people make (very) expensive mistakes.
Mistake #7: Not letting your winners run
Another common mistake investors make is to let the winners run, which is hard to do. If they see that a certain stock has made some profit they sell too early, fearing they might loose the profit. That’s a real shame, since you can’t make a lot of money. If you expect that a certain stock is able to rise further, just wait to take your profit.
Mistake #8: Panicking when making a loss
Making a loss gets us all nervous. Some investors even might panic. Of course, loosing money – or at least seeing the stock market tumbling – is annoying. However, that’s part of the investing game. Sometimes you win, sometimes you loose. Just make sure you win more than you loose. By panicking you don’t think clear and sometimes you act in a horrific way. Always try to keep your cool and accept that your losses. Stick to your goals and strategy and execute it meticulously.
Mistake #9: Invest with emotions
It’s unwise to trade with emotions, simply because you can’t make rational – fact based – decisions. Negative emotions can really have a negative impact on your investing behaviour (eg. selling to soon), as well as positive emotions (eg. buying overvalued stocks). If you feel overly sad, angry, overconfident, you should quit trading for a while.
Mistake #10: Never evaluate your investments
Finally, a lot of investors never take the time to evaluate their past transactions. Which is very unfortunate, since this can reveal quite some interesting learnings.
A lot of investors can easily talk about their past successes, and less so about their losses. Actually you may learn much more about the latter.