When you start investing for the first time, there are a lot of mistakes that you can make. It may be due to lack of knowledge, impatience, or just ignorance.
Sometimes these mistakes could be very costly, as these will make you incur huge losses.
In this article, I will tell you about 5 common mistakes that student investors or beginner investors make and how you can avoid them easily.
Below mentioned are some of the mistakes you should avoid while investing in the stock market:
- Chasing returns
- Choosing Stocks based on recomendation
- Copying a successful investors portfolio
- Investing with the trader mindset
- Lack of Patience
Knowing about these mistakes will save you a lot of money and even give you good returns.
1. Chasing returns
One of the most common mistakes that beginner investors and student investors make is chasing returns.
We often choose a stock just by looking at the returns it has given in a specific time frame, It may be in the last three months on the last six months.
This is one of the riskiest moves in the stock market.
If you invest in a stock just by looking at the returns it gave in the last few months without even researching the basics of the company, its business model, and other such factors then there is a high chance that you will lose money sooner or later.
There are a lot of reasons for which the stock might have given good returns in the last few months. But that doesn’t necessarily mean that it will continue to give the same returns for the upcoming months.
The price you are currently buying the stocks at can be at its all-time high which makes it very risky to invest.
This type of investment is nothing less than buying a lottery ticket.
Solution:
The best way to avoid this type of mistake is by doing proper research before investing in a company.
Look for the fundamentals of the company, its business model, future plans of expansion, and allotment.
2. Choosing Stocks based on recomendation
Another common mistake that beginner investors or student investors make is buying stocks based on recommendations from various sources. It can be from TV programs, online websites, Facebook, Instagram, or YouTube.
Most of these people recommended stocks based on poor research, sponsorship, recommendations of other people, etc, which makes this type of investment decision very risky.
Even if you consider taking the recommendations from a certain source, make sure to verify it and do your own research before investing.
Solution:
If you want to take stock recommendations take them from expert analysts.
Look at the proper analysis as well company fundamentals. You can do so by using apps like Groww and 5Paisa. They give you Stock analysis reports for you to choose from.
3. Copying a successful investors portfolio
The common mistake that new investors make while investing in stocks is that they copy the portfolio of successful investors like Warren Buffett, Rakesh Jhunjhunwala, etc.
This is one of the silliest mistakes that can be made in the stock market. There are a number of reasons why you should not do that.
One of the basic points is that you don’t know the entry point of the investors in the company.
They may have bought the shares at a very low price and the current value of the shared may have increased.
For example, let’s say the person has brought the share for Rs. 200 five years ago and the current price of the company is at Rs. 1500
This may make you lose money when the price goes down. You also don’t know how much they have invested and what is their objective and risk profile.
Though the portfolio of these investors is public all the information may not be public or updated, which makes it even riskier.
Solution:
You can look into the investor’s portfolio for inspiration or recommendations of the stocks.
After that conduct your own research and analysis and make sure the stock is suitable for you to invest.
4. Investing with the trader mindset
Another common mistake that new investors make in the stock market is that investing with a mindset to trade.
You should know that there is a difference between an investor and a trader. In layman’s terms, an investor buys and holds the stocks for a longer period of time and a trader buys and sells the stocks in a very short duration, maybe even on the same day.
Both of them have different reasons to do so and it is completely different.
If you are looking to get a lot of money in a short duration you might want to rethink investing in the stock market.
Intraday trading is one of the riskest types of investment that you can do as a new investor
Stock trading requires high knowledge of the stock market and is often very risky. Trading without proper knowledge may result in huge losses.
Solution:
Out of the entire amount you want to invest in the stock market, keep a small portion aside and use it to trade and learn intraday trading. Invest the rest for longer durations.
5. Lack of Patience
Another common investment mistake that beginner investors make is having lack of patience.
Sometimes some investments take time to give returns.
When you invest in a stock at a certain price and the price dips, you should hold and look for a reason for the dip.
A price of a stock can go down due to a number of reasons.
In such a case, you should look for the reason and then make the decision of whether to hold it or sell the stocks.
Being impatient in situations like these will make you sell the stock and lose money. You will also regret selling if the price goes up instantly after selling the stocks
Solution:
It is always advisable to invest in a stock for a long time to get good returns.
Investing in stocks with the mindset to get good returns in a short time will only give you results if you have done your research or there is a good reason for the stock price to go up in a short duration.
These are some of the stock market investment mistakes that you should avoid as a beginner/student investor.
Even if you have made some of these mistakes and incurred some losses, you should not give up and continue learning and investing.
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