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If you’re a beginner like I was not too long ago, this post will teach you some things not to do. These are some of the investing mistakes I made when I began investing in the stock market. And you should definitely learn from them. These are some mistakes I made more than once, because I got greedy and my ego was high.
If you’re like any other human then you’ll most likely make these mistakes too if you’re not aware of them. I will talk about 5 investing mistakes to avoid in the stock market. You should be aware of these whether you’re a beginner in investing or you’ve been doing it for a while. So let’s get right into it!
#1. Assuming Trend Will Continue
Let’s start with one of the most common and easiest investing mistakes to make when investing in the stock market. As a beginner you don’t truly understand how stocks perform and what kind of factors influence the stock price. If you’re looking at some companies and their past performance, it’s easy to think that they will keep performing that way. I made that mistake with Square and it was not fun.
This is a dangerous game. That type of thinking is a big mistake and it could cost you your hard earned money to be lost. Now don’t get me wrong, the stock for that company could keep making huge gains. But it could just as easily fall back down huge, as it happened with Square, sigh. Therefore, a good lesson to go by is a stock’s future performance is not determined by its past, but rather by its present. This mistake seems like it’s easy to avoid but I’ve made this mistake too many times when I first started investing.
#2. Not Researching Beforehand
Another investing mistakes to avoid in the stock market is not researching beforehand. Just like mistake number 1, where it’s easy to assume the uptrend will continue, it can be easy for your thoughts to serve as guidance to buying stocks, but that’s not the way to go. We can have so many assumptions pop into our brain but we need to remember to look at the facts first.
This is a common mistake that we will all make all the time possibly. However, we should also do the research so there’s a better idea as to if a stock is a good buy or not. There’s a multitude of ways you can do research for a certain company, so let’s just go over the basics.
You can start to do research by simply keeping up with the news for whichever company you’re interested in investing in. This will help to keep you up to date on what the company is planning, if they’re releasing new products, and etc. A great resource I use to do research for companies is Yahoo Finance. It provides a ton of data as well as news articles related to the stock you are currently viewing.
On top of the news, you should familiarize yourself with the company’s financials. This can include the company’s operating income, expenses, profits or losses, how much debt the company is in, and so much more. This can usually be found in the financials section in Yahoo Finance as shown in the picture below of Apple stock.
It’s also a good idea to look at the statistics tab as well, which provides some additional information of the stock. I usually look at both of these tabs in depth before I purchase stocks of any company. You can also look at the historical data tab, but I only use that when I’m looking for dividend stocks. We can get into dividends more in a later post.
Now, if you’re really into researching or curious about following companies, then you can listen in on their conference calls. You can do this easily if you invest with Robinhood, which is the brokerage account of my choice at the moment.
If you’re a beginner, I talk briefly about brokerage accounts in my post how to start investing. But pretty much, Robinhood will notify you when a company is having their earnings call, usually every quarter. And it gives you the option to listen into the conference call. This is really handy as you don’t need to find any links or anything, it’s just built in conveniently.
#3. Letting Outside Factors Influence Trading Decisions
The third one of the investing mistakes to look out for is having others influence your trading behavior. For example, if you’re reading an article and the author says you need to buy a particular stock because of it’s performance or potential and then you go and buy some shares of that stock. This can hurt your portfolio greatly, because you’re just going off of someone else’s thought process and assumptions.
No one in this world is going to think like you do and analyze stocks the way you do. Therefore, you should base your trading decisions entirely on your own. I’m not saying it’s bad or anything to read other articles or even websites like this. All I’m saying is to do your own research, analyze stocks, and then decide. Make a decision on your own if you think it’s a good idea to buy that particular stock or not.
I have made this mistake multiple times and for most of them, I have not profited from them. So don’t jump to conclusions and make a trading decision from reading articles on websites, even this one, Parhelia Finance. I want this website to serve as a resource for investing. It will show you guys my thought process and how I invest. But, that doesn’t mean you should do exactly as I do. Sometimes I may be right and sometimes I may be wrong, so it’s important to form your own opinions. Just because I like apple stock doesn’t mean you have to like it either.
#4. Not Following Through On Your Own Word
So this is one of those investing mistakes that you may sometimes think it was a good mistake. Let me explain. For example in short term trading, you buy a stock because you read an article on it and you think it will crush it on their earnings report. Then, you tell yourself you’re gonna get out and sell your shares after the earnings report when the price jumps.
It’s what you expected, the stock price increased after their earnings came out! However, now you start to get a little greedy and you don’t sell when you were supposed to. From here, the stock price keeps increasing and this is where you may be thinking, this isn’t a mistake, I’m gonna make $$$. It was a good thing you didn’t sell, otherwise, you would be missing out on potentially huge profits right? Well maybe, but there’s a bigger problem.
The mistake is that you’re not listening to yourself or following through on your own word. In this particular scenario sure this may work out for you. But, what was supposed to be a quick buy and sell with low research, now turns into longer term hold, with more research involved. Now you have to, or you will be, more invested in this company than you originally planned.
From there, the stock price depends of multiple factors that you will need to take into account to see whether this stock price will keep increasing or starts to dip. Now let’s look at the same situation but a different turnout. The earnings report comes out and there was another factor you didn’t take into account. Now the stock price is tumbling.
So, you have two choices. Either sell and cut your losses short or wait it out and see if the stock price will increase so you can get out net zero. If you follow through on your word, you may cut your losses and get out. But, if you decide to stick around, you’ll have to stay invested longer in this company then you originally planned to be. You also won’t be sure if the stock price will increase again or not either.
Therefore, I recommend you follow through on your word and do what you told yourself you would do. In short term trading, such as trading during earnings reports, depending on the outcome, you may not be able to recover from any losses if you change your decision to stay or leave. We only covered one example in this post, but it could also apply to different situations such as when a company goes IPO (Initial Public Offering), or releases a product and etc.
#5. Diversifying Too Much
The last one of the investing mistakes I have made and that you should avoid is diversifying too much. A little diversification is fine and good. However, when you start to dabble in a wide array of investments, you may start to lose track of everything. You may start giving more attention to the different stocks if you diversify and the stocks that you were interested in won’t get as much attention.
For example, I like tech stocks, but when I see some other stocks that are doing well, I want to invest in them. Without doing my research beforehand, making investing mistake #2. I did this when I started investing in Roku. At the time, I was investing in Apple, Facebook and AMD. So, I for some dumb reason sold some of my Apple shares so that I could buy Roku shares. I just saw the trend for Roku since it recently launched and decided to go for it. I’m not sure if it was bad luck or not, but the very next day Roku started to tank.
So the point I’m making here is that, Roku isn’t a super tech stock but Apple IS. And at that point I was pretty much neglecting Apple and doing more research on Roku. Now I needed to regain the amount I was down with Roku, because I didn’t want to take a loss.
So if you’re into tech for example and you know more about tech stocks, it may be a good idea to focus on them more, and only diversify to different avenues if you’re truly interested in the company. Because if you try to make quick cash it may hurt your other stocks since you may not be as devoted to them.
Well there you have it, 5 investing mistakes you should avoid when investing in the stock market! In my investing journey, I have made all of these investing mistakes and many more, sadly. I still find myself making some of these investing mistakes from time to time. But, no matter, I’ll keep learning and improving. Enjoying the process and the journey! Thank you for reading, I hope you found this post useful and you can learn from my mistakes and failures.
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