5 Common Investing Mistakes
- Being a successful investor is not an easy task at all. Investing is an all in one test of competence, conviction, patience, perseverance etc.
- Many think that the route from starting investing to reaching your investment goals is a straight line, but actually, its full of many ups and downs.
- Success in investing depends on your decision making skills, your discipline to act accordingly, your patience to wait for the right time, your consistency to be always there & much much more.
Here are 7 very common mistakes which almost everyone makes in their journey :-
Lack of Diversification or Over-Diversification
- While diversification is the tool to resist volatility in your portfolio, too less or too much of it can be harmful. Ones needs to have a proper balance of it in his/her portfolio.
- If you diversify too less, your portfolio becomes concentrated which means you have high allocation of your money in fewer companies. This is a double edged sword. Its offers both, an opportunity to high profits as well as high losses.
- If you diversify too much, your portfolio becomes over diversified which means you now will be holding even the non performing stocks which would act like laggards & keep pulling your portfolio back whenever it wants to go up.
Expecting short term performance from investments
- Timing the market is really hard. If one does it right, there is literally no limit on how much he/she can make. But if it does done wrong, it can be a disaster for your portfolio. Hence, it is always recommended to not time the markets.
- Your portfolio might give returns in the current market phase, but what about the next one? The reason they are called investing is because they are supposed to be help for long term, the short term volatility should not trouble an investor much ideally.
Thinking that booking losses is a bad thing
- Markets are random in nature. As investors or traders we can only control the process, our entry exits but the one thing we cannot control are the return. If the trade results in a loss, then take it! Why run away?
- Taking small losses not only saves you from bigger losses but also allows your to re invest that money in other ways.
- So, be humble & take the losses. Trust me, losses give way better experience than profits. Losses are the best teachers/mentors one could ever ask for!
Not committing to your time horizon
- Many times it happens that we buy some Xyz company for a minimum time period of "5 years" but then fortunately 2 weeks it goes up 15% & we book our profits. Then we miss out that big opportunity due to our impatience. Has it happened with you too?
- Once you have decided your time period, stay dedicated to it. If you have done your research with proper analysis & looking at everything else, why worry? Trust the process & the homework which you've done.
- The true potential of an investor is reached only when he/she is disciplined enough to follow their plan. This is what enhances the chances of achieving long term outperformance from others.
Changing styles too frequently
- When one faces losses, they start taking the next trades with too much conservative approach. When one start gaining, they start taking the next trades with too much aggressive approach. This isn't good. Find out one thing which suits your personality & stick to it. No matter what's "trending" currently.
- Market works in cycles, everything is temporary in nature. Something which works today might not work tomorrow & something which is not working today might work tomorrow. All you need to do is be confident on your research & have patience. The fruits will grow by themselves!
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