From Roaring Kitty down to the “Oracle of Omaha,” Warren Buffett, believe it or not, has made mistakes from time to time in the stock market. Whether overzealous, managing unrealistic expectations or putting all your eggs in one basket, we all have been there.
Here are three common mistakes most investors make in the stock market:
Investing without knowledge
The latest buzzword in retail investing is “Do Your Own Research #DYOR,” While holding some merit, not all of us have the time or skill set to analyze shares and the financial markets holistically.
So, before you make your first investment, educate yourself on the basics of economics, financial statements, and fundamental and behavioral aspects. Yes, it is hard work, but if you don’t look at all these factors, it’s no better than gambling; that is not where true wealth is created.
To make things easier, most financial institutions give access to excellent investment research compiled by investment professionals for their clients, which is a great place to start. This is a perfect add-on to your knowledge base to gauge if you, as a newbie investor, are on the right track.
These, along with self-education, will enable the investor to make informed decisions and not just jump into the market on a hunch or tip at the family braai.
Having Unrealistic Expectations
With the rise of social media, it has become straightforward to share and consume disinformation without legal responsibility for guiding budding investors toward certain investments.
The unfortunate truth is that most investors with unrealistic profit expectations tend to get involved in unscrupulous investments that promise unrealistic returns and lose money.
Take a step back, keep your expectations reasonable and make peace with the fact that the average Joe, that’s you, won’t become a billionaire overnight. Put in the work, set realistic targets based on your portfolio size, and re-evaluate when your profit target is reached.
Putting All Your Eggs in One Basket
We have all heard the classic statement don’t put all your eggs in one basket, and today those words, first published in 1605, still ring true to this day. Investors can be highly aggressive when they see an opportunity to make a profit but investing all your capital in one asset is extremely risky.
All is well if it goes your way, but, If the market goes against you, you are stuck in one asset with no means to counter without taking a loss.
Diversification is key to a sustainable long-term investment portfolio, and creating a basket of shares across different asset classes should be valuable for the investor.
Sources: This is money
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