What comes in your mind when you hear the word “Stock Market”?
For most of us, it’s either “Lots of Money” or “A big organized gamble”. Well, both of them are incorrect. Stocks market or share market was never meant to make people millionaire overnight. It is true that many people have made their fortune in stock market investment but it is also true that many people have lost everything in the stock market.
When it comes to investing in the stock market, people always think of it as a money-making machine. Most people dream of becoming a millionaire in no time with their investment in the equity market. Interestingly, many of them don’t even know the basics of the stock market. They just want to buy stocks and sell at a high price.
Making money in the stock market is possible but it’s not easy as buying and selling. One need to do intensive homework in choosing the right stock for the investment by using various methods. You must understand the basics terms of equity and factors affecting its movement i.e. up and down. Obviously there are many factors that affect stock movement and it is not possible to catch and act at the right time. But, if a person does his/her homework before putting money in the stock market, definitely he/she will never lose money in the long run.
A person should have balanced and controlled fear and greed to make the most out of the stock market. But, as an experienced investor in the stock market, I can tell you that, it’s not easy to understand and control our actions easily. It comes with time and experience. Based on my experience, the following are some key mistakes done by most of the new stock market investors.
Following are top 5 key mistakes beginner make in Stock Market
I am listing following stock market mistakes that almost everyone does when they enter into stock market. However, these are only my list and no matter how hard you try to avoid but you can’t control yourself in making the following mistakes in the stock market if you are a beginner.
1. Incorrect perception to become a millionaire
People think of the stock market as a machine to become a millionaire in no time. They think, it is a ladder to treasury box and it’s about multiplying money every day. They always expect unreasonable targets on invested money.
This idea of the stock market results in greediness and many people lose money because of this greed and hurry to multiply their money. When greed comes, people put money (I won’t mention invest here) in any random stocks advised by investment gurus or friends. People often forget to diversify their portfolio in multiple sectors/market caps.
The stock market never generated quick money and it requires patience and proper research before investing. If you really want to get the benefit of stock market investment, then never consider it as a money-making machine rather consider it as a business. When you invest in any business, you know the business and its management first and stay with it for a longer time. Therefore, the first step it to clear your mind if you have this kind of mindset related to stock market investment.
2. Start with Intraday
The next mistake is Intraday trading. As I explained earlier, people like quick money and they lose instead of earning when they chose the short path. I hope you already know about Intraday trading. When you buy and sell a stock on the same day, it is called intraday trading i.e. you have to close your position before the market ends on the same day.
Another reason people chose Intraday because of the margin money they are getting from their broker. Many brokers give 10 times your money to trade means if you have 10,000 INR you can still trade stocks of worth 1,00,000 INR. This generates more greed and eventually many of us end up in losing their initial money instead of making any money.
It’s very common to mistake and it’s like addiction and it is difficult to avoid intraday once you started and earned some money in your few early trades. If you have done it, you can relate to my point here.
So, stay away from Intraday trading if you are new to the stock market.
3. Investing in futures and options
In a mood of earning quick bucks, people look for all possibilities they here on stock market new channel or broker recommendations. Futures and Options let you invest only small money and if it performs in your favor, it could multiply your money in a single month.
This attracts many newbies for the same reason but they usually forget the dark side of it i.e. if it doesn’t perform in your favor/prediction, then it could make your investment to ZERO.
Futures are options that are a real gamble, it could make big money or take all your money and most of the time, it is controlled by the big players of the stock market. Staying away from futures and options would be my honest advice if you are new and want to stay in the market for a long time.
4. Ignorance to fundamental of stock
There is no formula to predict the stock’s movement in the future. However, if you have invested in god quality stock/company then you don’t need to worry because eventually, it would give you a positive return in the long term.
When you invest in stock or equity, you are investing in a company and you become a partner. Therefore, before you put even a single penny in the equity market, make sure you know the business and the company. So, how do we find the good companies to invest? Well, for this you have to check various information like, company’s debt, PE, EPS, quarterly profits, yearly profit trend, company’s vision etc. You can find all this information on the company’s annual report.
You may not understand all these technical things quickly, therefore consider using google to understand these technical terms and best stocks evaluation methods. Fundamental is key for long term success in the stock market. Good fundamental stocks may take time to give you handsome returns but somehow it guarantees returns. Therefore, give some time in understanding the fundamental of your stock before investing money in it.
5. Lack of Focus or patience
This is very important because focus and patience is the key for the successful investor. Paying attention to the market situation, finding the right time for buying stock and keep monitoring the company’s management actions always works in investor’s favor.
The majority of the people in the stock market are in a hurry to earn money and lack patience. This forces them to sell their holding in losses many times. They don’t have confidence and patience and they go with market trends.
Therefore, if you want to make good money in the stock market, learn to be focused and always have patience once you buy any stock after proper research.
Conclusion: Investment in the stock market or equity market is risky and returns are not guaranteed. But if you pay attention, do your homework, invest in quality stock and have patience then you may get positive results from it. However, if you are not confident with investing directly in the stock market, then you can choose to invest in the stock market through the equity-focused mutual funds.
In mutual funds, a qualified and dedicated team will invest your money in good quality stocks and it has proven positive returns in the long term i.e. between 12%-15% returns.
These were my list of mistakes performed in the stock market by the newbies. Let me know if you know any more common mistakes in the comment section.