12 Biggest Investment Mistakes People Make. Learn How to Avoid It –

There are many investment mistakes that individuals make with their investment decisions, which are as follows –

1. Understanding –

Not knowing what they are buying, to wit, a very large number of people don’t actually understand the industry, company and business model, in which they are willing to invested or have already invested.

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Solution –

Do right due diligence to understand the business, its market (local and global), government’s perception, future outlook, intention and activities of company’s management, challenges, company’s strength and weakness, competitor’s analysis, MOAT, financial reports & numbers.

2. Attachment –

If people are invested in a company, if the past performance of that company was good. Due to this, people don’t use their rational when there is something wrong with the company in which they are invested. But, people don’t sell the stock because they think about the past performance of the company. And, sometimes they have to face a substantial loss.

Solution –

This is crucial to understand that past performance never gives the guarantee of same future performance. When stock’s price declines, don’t lose patience and act wisely, as it may be a good opportunity. You need to do efforts diligently and try to figure out the actual reasons behind the decline. Try to know that the roots and causes of decline are internal or external. If you find that there is something wrong that may affect the fundamentals of company and its business in a short time or future, then think about the get rid of this stock. Sometimes, stock’s price declines due to other reasons but fundamentals of business and its future remains intact as good, this time it may be a good opportunity to increase the position of this stock in your portfolio.

3. Over Ambitious –

Some people don’t have patience; therefore, they make investment mistakes. They make decisions aggressively or foolishly. They have strong wish to become ultra rich overnight. They don’t understand the principle of slow and steady growth, that’s why, ultimately, they lose more than they make.

Solution –

Investing is not a gambling. It’s a mixture of skills, emotions, hard work and rational. A good investment decision always backed by depth analysis, strong understanding, patience and making wise decisions on right time. Investing is a long-term process. Never make a mistake to see the investing as option of making money in a very short time through gambling or hypothetical money making machine.

4. Brokerage –

Some people don’t research about the brokerage firm before account opening for their brokerage charges, fees, commissions and any other. Furthermore, people sell and buy frequently without the understanding of short-term gain, long-term gain and applicable tax laws. This ultimately hurts them.

Solution –

People should understand tax-laws and its impacts on their investment. People should decide their goals and make investing as per their short-term and long-term goals. Furthermore, people should do thorough homework to know about brokerage charges, fees, commission, penalties, broker’s reputation and feedbacks to choose a right brokerage firm before account opening.

5. Time The Market –

Solution –

It is one of the foolish decisions or biggest mistakes to “Time the Market”, as it is very hard. Most often, well experienced & big investors and institutional investors also fail to time the market successfully. Don’t try to make a mistake to time the market.

6. Wait –

Sometimes people don’t sell the stocks even if they are sliding continuously. This attitude ultimately hurt people by a big amount of loss.

Solution –

If you strongly count on your research behind your investment decision, and you understand your stock appropriately in current declining time so you may hold your position, otherwise you should consider sell it.

7. Underestimate The Power of Diversification –

Solution –

It is also considered investment mistakes to underestimate the diversification. People must rely the concept and power of diversification instead of sorely rely on one company or industry. Some people don’t feel good for diversification, as it can minimizes their return in good market time, but the other scenario is also true and worthy, as diversification save us to lose more during market decline. The one rule of thumb is: “Saving money is far important than earn in the Stock Market”.

8. Emotions –

Solution –

People also make investment mistakes due to their emotions. Sometimes, stock market acts foolishly or moves very fast in either direction due to a variety of reasons, that’s why, most people lose their rational & patience and make wrong decisions. People should dig deeper and try to understand the fundamental reasons behind this behaviour of stock market, why market is going down or up. And, if people have done appropriate homework to find a business before investing of their hard-earned money into that business so they should re-check their analysis in current scenario.

9. No Understanding of Risk –

Solution –

Some people invest in mutual fund without knowing the objective of fund house or buy stocks without right understanding of their risk tolerance. Sometimes, it may hurt entire investment. People should take expert’s advice and discuss their goals and risk tolerance with them. People should take calculated risk. People should never prefer unknowing risk(gambling). Whether mutual fund or stock investing or any other kind of investment in monetary form, people must do their due diligence. People must read and understand all the related documents, claims and future prospects before investing.

10. Everyday Mentality or Short-Term Mentality –

Solution –

Some Individuals have everyday mentality which means they love buying and selling during every market session for a short-term gain. There is very low probability to make big money by doing this. It is possible that sometime they earn huge difference in positive, and this positive figure will stimulate their greed and will encourage to take big bet; now it’s not guarantee to make positive figure in same proportion like before. Finally, it is crucial that choose investing backed by due diligence, analysis and understanding, as everyday mentality may harm drastically.

11. Not Seeking Expert’s advice –

Solution –

Financial experts will guide and help you to select and invest in right asset class as per your goals and risk tolerance. Notice that, take advice only well experienced and a SEBI registered advisor. And, try to know the track record of her/his advisory service before going there. The guidance of Financial advisor will help you understand and monitor the market scenarios. Financial advisor can make appropriate adjustments in your portfolio during a period of time to maximise the return.

12. Invest on Tip’s Basis –

Solution –

Invest on tip’s basis is one of the biggest investment mistakes. Always rely on your own self conducted research and rational. Whether she/he is your near or dear, never make money related or investment related any decision based on rumours or tips, as it may severely impact your investment as well as your financial destiny. You can seek help of a SEBI registered experienced financial advisor with track record.

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