As many as 90% of people lose money in stock markets, but that doesn’t mean you shouldn’t invest. What holds many people back is that there are a few common stock buying mistakes.
However, they’re easy to avoid once you know what they are, and that’s where we come in. We’ve outlined five common stock buying mistakes, so you know what not to do—keep reading to find out what they are.
- Lack of Knowledge
Before investing, there are things you need to know.
Often, people will invest without sufficient knowledge, and this can lead to losses as they pay more than they should for stocks or sell them at the wrong time.
You’ll need a basic knowledge of the stock market, and finance in general, before diving in, and you should probably refrain from spending too much to begin with. For example, if you’re looking into buying crates, you can try it out here first.
- Not Diversifying
It’s important that you diversify risks too—invest in stocks from different industries. This way, if one area is experiencing problems, your entire portfolio will be relatively unscathed.
To diversify risks, consider investing with exchange traded funds (ETFs).
- Emotional Investment
When investing in a company, ensure that you don’t get too attached.
Keep an eye out for red flags, like the business underperforming for successive quarters, senior leaders leaving, or non-performing assets going up.
Put your finances first and look after yourself, as getting too emotionally invested can lead to a smaller return on your investment.
- Following Recommendations
Recommendations are often helpful, and it’s only natural that we consult friends, family, and even strangers online, but it’s generally something to avoid when it comes to investing in stocks.
Following a friend’s advice won’t always work out—everybody has different objectives and varying levels of experience, so what works for them may not be best for you.
There’s no harm in listening to recommendations, but make sure that you make your own decisions.
- Chasing Returns
It can be difficult not to be chasing returns when you’re picking a stock to invest in, but it’s nonetheless something that you should be avoiding.
Stocks move in a cyclical fashion—they’ll go up and down. Should you invest in a stock when it’s giving high returns, that’s no guarantee that you’ll end up getting high returns too.
Don’t forget to really analyze the company, as companies failing in management, their business model, or another factor can see high valuations too—chasing returns can help you lose money in the long run.
Avoiding Stock Buying Mistakes
These are just a few of the main stock buying mistakes to avoid. It’s not an exhaustive list, but by avoiding these simple mistakes you’ll stand yourself in better stead when it comes to investing.
Above all, make sure that you have at least basic knowledge and do your research before making any decisions, and you should be setting yourself up for success.
If you’re looking for more advice on investing or another area of finance, be sure to check out the rest of our posts.
