Investing mistakes

If you’ve blundered, you’re not alone. The majority of investors lose out to overtrading, over confidence and sudden shifts in risk management.

Everyone makes mistakes, sometime or the other. The real deal comes to how much has the mistake cost you. The lack of free-flowing information, we agree, led to disastrous investment decisions earlier. Now we have a network of information platforms, each ready to be boarded and utilised fully. Throughout the day, we can trade via the online from our homes and offices on a daily basis, instant decisions directly addressing our financial well-being.

This is neither good nor bad, as this is making us more vulnerable than our predecessors. The key to solving this case is avoiding a repetition of faux pas. Here are some of the contending slip-ups that can be done without.

Buy when high

A serious blunder. People tend to invest in stocks showing high performance. Yes, it may be worthwhile but how high is the limit? Eventually, the bubble has to burst or if it remains intact, there is always a ceiling. The best time to invest is when the movement is upward but not beyond its previous high. The price of a share is strictly based on the investor confidence in the company, anticipating a higher return. This pushes the price upward as the majority is willing to go for such shares, hoping to claim the dividend when announced; or, sell it off when it is at its peak.

Avoid risk

A general trend is to avoid risk to the maximum. As discussed earlier, a high performing share may go higher than its recorded levels, attached is a higher probability of falling below its previous low. The time is never known. Many people view investments as “all or nothing” – a gamble. The theory of risk management and measurement suggests that putting all the eggs in one basket has devastating consequences.

Small business entrepreneurs claim to be high-risk takers; in fact, one can only tolerate a maximum level. This varies with each individual or business. Being risk-averse will not solve your problem either because if you are not in the capacity to take a loss, you might as well quit the game altogether. It is useful to invest in the form of a portfolio of shares rather than wait for one company to revive from its slumber. This helps counter the loss incurred on one with a possible profit on another.

Avoiding a loss

It is a common and undeniable belief that nobody wants to lose any money. The pain and agony that a loss of £100 will cause will never be overcome by a profit of £100 or even £200. Such is the psychology of humankind. People also tend to take up a higher risk to avoid a loss than to make a higher gain – completely opposing the fundamentals of investing to increase gains. Such people will not even sell a dipping share even if it helps save their skin from drowning.

Over trading

Investing short-term is sensible but transacting at extremely short intervals reduces your chance to earn higher returns. The reason: a flat commission charged per transaction counts. If you plan to lower your transactions and concentrate on gaining more per transaction, the commission you pay remains the same and you get more out of it. On the other hank, if you were paying up a commission on a percentage basis, it wouldn’t make any difference to you.

Tips for sale

Don’t rely on tips from people, whether you know them or not. Tips work best where they came from, the person(s) who gave it to you, because they understand what they said. The best policy for online or regular trading is to do a little research on your own. It helps in getting a better insight on what your moves should be instead of being dependent. You will always get tips now and then as a social activity, but deal with them only if you know what you should be doing.

Rush of confidence

It is definitely better to be confident about your actions, but it is even more important to remain strong and controlled. Often an over confident person gets depressed if he makes a mistake and believes that his luck has run out. A controlled person looks forward and learns from his mistakes, whereas once lost, the over confident is not capable of making a decision for himself until he regains what he has lost. Still he fears further loss, making it impossible to focus as required.