When you are just beginning in the world of investment it’s very easy to get swiveled away with the idea of high returns. It’s not uncommon to come across advertisement like “we will help you double your investment in 2 months”. But what one needs to understand is that the amount of risk that comes with it. While chasing high returns in equity markets its very common for people to make mistakes. Here is one such list of what not to do while investing in equity markets:
Investing with trader mindset
One needs to understand the difference between a trader and an investor. A trader is one who actively sells and buys shares on a daily basis to prosper from the price and volume movements. Meanwhile, an investor is one who is there for the long haul. They invest in companies who have good history and expect an even better future performance. An investor might be there for a short period or a long period depending upon the analysis but even the short period typically ranges between 4-8 months. People who go in with a trader mindset end up undertaking excessive trades and try to make up for losses in a very short time period. A trader engages in ‘buy and sell’ but an investor focuses on ‘buy and invest’.
Investing in companies that are already trading at their respective highs
Another common mistake is investing in companies on word of mouth, companies that have already undergone their peak performance period. While investing in stocks that are rallying upwards its empirical to understand what’s the target price and whether entering at that point would be profitable or not. Every stock has its peak post which market dumping takes place and its very easy for a novice investor to end up incurring losses on such trades.
Chasing high returns in a short period
An investor needs to be realistic with his/her expectation with respect to their investments. Chasing high returns in a very short period will generally lead to disappointment or over indulging in trades that might be beyond their understanding. Even the best PMS in India are unable to offer guaranteed high returns in short periods.
Buying based on recommendations
We have all come across so many people on the internet offering free advices or recommendations to invest into a certain stock. Many people fall for these gimmicks and end up following these recommendations. At times they do work but more often than not, these lead to huge losses. One must only follow recommendations of professionals and people actually working in this field. Some can follow analyst recommendations while people with higher networth can undertake the help of portfolio management services to help build a strong portfolio.
Not diversifying enough
We have all heard that “don’t put all your eggs in one basket” and its especially true in terms of building an investment portfolio. Even for people who just want to invest in equity market its highly important to practice diversification and build a portfolio along those lines. One must not put all their money into one stock no matter how strongly they feel about it.
Not Researching and planning
Lastly, one must not undertake trades without doing their own research. Its important to understand where you are putting your money and how much risk it entails. Planning your investments in such a way that it aligns with your future goals and expectations is also very important.
Equity market is very vast and it has a place for everyone. One can definitely make it through by being prudent with their investments. If you are new in the market or old, its empirical that you avoid making such mistakes. If you try to learn from your mistakes and keep imbibing knowledge as you move forward, you will surely get to reap you rewards.