Common trite of both a novice investor and veteran investor are the mistakes they make independent of history of learning’s.
1.Being patient with losers and impatient with winners:Investors hold onto losing stocks too long in hopes they will come back to their original price while selling their winners too early. Several of these winners which are sold out early might be multibaggers down the line.
2.Fear and greed: Selling on fear and Buying on greed. As the legendary investor once said, it should be the other way around ‘Buy when every body else is selling and sell when every body else is buying’. It is a human psychology to react in this manner, but if you want to prevail in the crowd as smart investor, in these testing times ‘patience’ is more important attribute to have during the turbulent times.
3.Falling in love with stock: After doing lot of research you pick a stock, but over a period several things change, with new competition, they might be loosing market share, earning growth is decelerating, debt might be piling up,but an investor who is emotionally attached to the stock may become oblivious of changing realities. At times, even when a stock is a multibagger and stock is clearly under performing the market for long time, investor is reluctant to book even partial profits just because the stock is his favorite.
4.Impulsive buying: At times, after hearing positive news about the company, whether company got a new order or starting a new plant, expecting more demand, several investors quickly a take a decision to buy the company. This happens more frequently in bull market. Always do some basic research before you come to a conclusion to buy. If you are a investor, you are not buying a share or stock, think like you are buying a piece of company. If you are trader, it is completely different ball game.
5.Envy and Jealousy: The idea of caring that some one is making money faster (then you are) is one of the deadly sins. You cannot attend all the parties in the world, similar you should not bother too much about missing some opportunities. Some one is always getting richer faster then you. It is not a disaster, it is just a reality, you need to accept. Don’t buy stocks because your neighbor is making lot of money buying stocks.
6.Over Confidence: It happens to all of us, First or second stock we buy increases by 20% or 30% in few days to weeks and suddenly we feel like we are an expert stock picker. At times, an investor goes over the board in taking risk and pays the heavy price for being over optimistic.
7.Herd Mentality: An investor should not blindly follow the crowd or even an Ace investor. Different people buy for different reasons, you cannot understand the rationale behind their decisions to buy or sell.
8.Investing by borrowing: When you are not investing your own money, you are always under pressure to perform, if you are paying say 10% interest, you need to generate lot higher than 10%, which leads to stress, followed by high risk taking decisions, which might not always be rational. You end up selling good stocks to pay debt because you made some profit and hold on to loosers(#1 mistake to avoid)
9.Trade every day: It is historically proven that more you trade, less the money you make and yet many believe that only way to make money in the market is to trade every day and all day long. This not only increases your costs in terms of brokerage charges etc, probability of making a mistake goes up significantly. It is not timing the market, but time in the market that matters.
10.Blue chip is always Blue chip: A stock which gives a compounded growth of 25% for the last 10 years does not necessarily give the same return for the next 10 years, investors who bought infosys in early 2000(after a phenomenal return for 10+ years), suffered a 75% loss with in a year and it took close to 6 years to come back to Original price. Getting carried is very easy in bull market, being patient and following guided investment principles and investing for long term always reaps rich dividends.