New investors are bound to commit mistakes. Some of these mistakes are small and inconsequential. But many of them either make or break the investor’s career. So, if you are thinking of investing, you should be aware of the following.
Investing without Preparation
Jumping in headfirst is a big no-no in the investing world.
For newbies, the “buy low, sell high” principle might sound straightforward. However, there are different ways to define “low” and “high” in the market.
Different conclusions can come from the same set of data. What’s high for you may be low for another and vice versa.
Before you jump in, study different basic metrics such as book value, dividend yield, and different ratios. Learn how they are calculated and find the stock’s weaknesses.
Trying Penny Stocks
At first, penny stocks appear like a winning idea. You can invest as little as $100 and get a lot more penny stocks than blue chip stocks. And if the stock moves up, you have a lot more upside.
However, the promise of huge upside and position size should be measured against the amount of volatility that they have.
Penny stocks typically come from poor quality companies that often will not work out profitability.
Penny stocks are extremely susceptible to manipulation and illiquidity. You may also find it difficult that there’s not a lot of information about penny stocks, so they’re not really a good choice for investors who are still learning.
It is still better to own a quality stock for a long time than try to make quick money with low-quality company.
Investing Something You Can’t Afford to Lose
You don’t have to invest your entire nest egg at one time. Remember investing is a long-term business. That’s true whether you’re a buy-and-hold investor or a trader. And when you want to stay in business, you’re required to have some cash for opportunities and emergencies.
Cash that isn’t invested in the market doesn’t earn any return. However, having 100% of your money in the market is also not a smart move.
If you only have cash that’s allocated for emergencies or other important things, keep it. This means you may not be in a good position financially to make any investment.
Chasing the News
Investing based on news headlines is a terrible mistake that an investor can do. You shouldn’t be actively searching for the next trillion-dollar stock or anticipating a record-breaking earning result.
You’re competing with large, professional firms that get information quickly and know how to analyze such faster.
Instead of chasing the news, find the companies that you understand and make them your first investments.
Investing 100% of your investable capital is one asset is not a move that pros would make. Even the best companies can issue that see their stocks decline drastically.
You can get a lot more upside by foregoing diversification, but you also have a lot more risk. As a newbie investor, you can buy at least a handful of stocks.
Familiarize yourself with industry knowledge and practices through training sessions designed and led by professional traders in Kapital Zentrum. They offer financial market information in different packages.