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Common Mistakes in Buying and Selling Stocks

Common Mistakes in Buying and Selling Stocks

Investing in stock market takes some amount of research and planning on the part of an investor. However, there are times when investors make some mistakes people make in the stock market.
WealthHow Staff
Last Updated: Oct 06, 2017
Stock markets have over the years, become one of the best institutions for investments. They offer a high rate of return and with the availability of online trading, you can track your stocks from anywhere, and at all times. However, making money in the stock market takes years of experience and research. Amateur investors, sometimes make some mistakes in buying and selling stocks. So, if you are someone who too has been tempted to join the fray of stock market investors, you should not act in haste, and instead should earnestly try to learn the art of sensibly investing in the stock market.

Common Trading Mistakes

Poor Planning
Most of the amateur investors are lured into investing in stock market when they hear stories of incredible returns from their friends and relatives. Constant media focus on the rally of stocks also tempts investors to return to the stock market. Such intuitive buying carries huge risks; therefore, it is important that one spends a lot of time researching and studying the stock market scenario. You need to have a clear strategy in place about how much you are willing to invest and till how much time you will stay invested. Once you have charted a strategy for yourself, then you can study the companies that you are going to invest in. A lot of information is available online and you can study the past performance of a particular stock. Research helps you to get an idea about the prospects of a company and what sort of returns can you expect from them.

Giving in to Rumors
Investors should always refrain from making an investment based on rumors or fads. Most of the time, these rumors are not true and this can make you to lose money in the stock market. Apart from this, you should not invest in something because everyone else is investing in it. The stock that has been rallying strongly may have reached its peak value and may be on the course of a decline. So, it is wise to play the wait and watch game, and invest based upon the credibility of a company rather than giving into false rumors and hype.

Panic Selling
Panic selling has caused many stock market crashes in the past, and a lot of investors have gone bankrupt because of this. Panic selling occurs when the stock market falls drastically, and investors, in order to prevent further losses start selling abruptly. Stock market has proven to benefit investors who invest for a long-term, so instead of selling, you should stay invested, unless, of course, the company is filing for bankruptcy. By holding on to your stocks, you have the prospect of covering all your losses when the stock rebounds and gains momentum.

Too Much Diversification
There is a current trend among investors to diversify their funds so that even if they lose money on one stock, the others will cover up for that. It is a healthy strategy, however, it can prove disastrous if you spread your stocks too much, as then the portfolio gets difficult to manage and the investments become too small to offer you favorable returns.

While it is necessary to be confident about your decisions, overconfidence can certainly prove to be fatal for an investor. If your stock has already registered the 10% profit as you had planned, it is better to sell it rather than expecting it to give you a 20% return. The important point is that investors allow emotions to get into their decision-making, which can result in poor investments and losses.

Depending too much on Analysts
Amateur investors rely heavily on analysts, and sometimes make all their decisions based on their advice. While analysts are professionals in this field with a vast experience, they can't accurately predict the results. If they could, they would have been the richest people on the earth! So, you have to understand that while it is OK to listen to their point of view, you should not base all your decisions based on it.

The golden rule of stock market is "there are no golden rules". There is no mantra which can assure that you make a fortune overnight. So, it is important to look at the stock market as an institution which offers good returns to people who make good preparation before investing in it. Wishing you the best of luck!