While there are several guidelines newcomers should follow when they invest, there are also certain practices they must absolutely avoid. Investing is not just about making the right or most reasonable decision, but it’s also about knowing how to avoid mistakes. As a new investor, you will face many challenges in your career, but by paying attention to a few pointers, overcoming these challenges would not be a problem.
Rushing to Invest Based on Anecdotes and “Tips”
Did you hear about the hot new stock or index fund with excellent returns that most people you know are raving about? You may be highly tempted to rush ahead and buy these super promising stocks before others do, but there’s some very simple advice for a person contemplating a decision like this: don’t. Investors, regardless of where they are putting their funds, should never rush to grab an asset. Some stocks or securities can be overhyped, often by pump-and-dump scammers who artificially inflate prices, therefore, be highly cautious when investing in hyped-up securities. Always research the company, its products, and check financial reports before spending your money.
Selling Stocks Hoping for Quick Millions
Time and time again, day trading has been presented as a wonderful, get-rich-quick opportunity for new investors. The practice refers to buying and selling stock in rapid succession, often within the span of a day. Whether daily stock trading is a legitimate practice or not really depends on who you ask. It’s important to understand that day trading is not a one-way ticket to making millions. Day traders do make money, but their earnings are not akin to winning the lottery, so if you do decide to become a day trader, start by understanding the possibilities and limitations of the practice. Get help from other experienced day traders in the beginning to master this particular art of investing. Lastly, finding a good tracker like Finviz stock screener can be helpful when you are looking at an abundant of ticker symbols.
Investing without a Qualitative Analysis
A qualitative analysis can be simply explained as a financial way of looking at the big picture. When you invest in the long term, especially in stocks, it’s vital to have an understanding of the sector as a whole. For example, imagine you were a tech investor in the late nineties. Back then, Blackberries were all the rage, but about a decade later, no one was interested in owning a Blackberry because nearly everyone wanted an iPhone. A qualitative analysis can show you where an investment is headed towards because it takes industrial factors into account. A company may have highly valued stocks, but you should also look at whether the stock value has gone up or down historically. Without this information, it’s simply not possible to make sound long-term investments.
Using Way Too Much Borrowed Money
Using margin, or borrowed money to buy stocks or shares should be done with caution. You may overvalue stock or underestimate the interest, thus ending up with worthless stock, or worse, massive debt. Margin should be used sparsely, if at all. Do a thorough calculation of how much returns you can expect considering the interest rate on the loan.
