What comes to your mind when you hear the word “Stock Market” – Scam, gambling, becoming rich overnight, or losing money likewise? Most of us perceive the stock market world in these brackets but is the stock market such a bleak place?
Let me add one more question to this series, and now you try to answer it. Why do so many people invest in stocks if it is as bad as gambling? Are these people fools? Well, certainly not. Some of them are making a plethora of money every day and are highly literate. So they must not be fools, right?
This blog will discuss the mistakes that one is likely to make in his stock market journey. How you can avoid these ambiguities and have a smooth and successful run in this field.
1.Trying to make money in a short period in stock market.
The myth about the stock market making oneself rich overnight has emerged from this very concept. People think that a stock market is a place where they will just put their money and receive a fantastic return on investment soon. So first of all – The overnight money-making process is a myth.
2.Overconfidence about stock market
Now, let’s just assume that you get lucky and actually make a good sum of money within a few days of investing. What will happen next? You will think that this is such an easy job and you will invest a bit more next time.
But since you don’t have enough knowledge and are predominantly dependent on luck – You might or will certainly lose your money one day or the other.
This is the overconfidence rush that most new, not well-versed people fall into.
3.Listening to a friend/colleague about stock market
Another common mistake that people often make. They get to know about the stock market from a friend/colleague, get amused by the money they are making, and then try to copy-paste their portfolio.
It is imperative to understand that there is no problem in taking advice or learning something from a friend, but giving it utmost importance might prove to be very harmful.
4.Depending upon a single stock in stock market
When you invest in a single stock, then your probability of losing money increases significantly. The reason is that even if you are very confident about that stock, it might underperform. And if it does, you are certain to lose your money since you have invested in that stock only.
On the contrary, if you have more than one stock, then even if that stock doesn’t perform well, then also it is probable that the other stocks might eliminate or at least minimalize the loss.
5.Lack of Knowledge of stock market.
The biggest mistake that people make is that they think of the stock market as a game more than a skill, and this is what differentiates the people who lose money from the people who make money in this field.
The people who have been investing and earning handsome amount of money from the stock market view it as a skill that they want to master, and therefore they invest their time in it, they learn how it works.
Therefore they perform well than other people who have just invested because of their friends/colleagues advice.
HOW CAN YOU AVOID THESE MISTAKES IN STOCK MARKET?
Here are some tips on how you can differentiate yourself from the crowd and avoid these mistakes.
1. Play a long term game in stock market –
Investing in stocks is not a T20 match. It is a test match. You will have to pace your innings, learn from your mistakes, and the best thing is that even if you don’t perform well in the first innings, you will still have a second innings to redeem yourself.
Prasenjit Paul has put it this way in his book ‘ How to avoid loss and earn consistently in the stock market’ – “Very high return promise within a short period of time is dangerous.” Remember, there is no shortcut to making money.
2.Only consult professionals about stock market
If I don’t have to take any advice from my friends, then where should I go? The answer is “go to a person who has the experience and is competent in this field.” There are many professionals out there who are ready to help you out; you just have to choose the right one.
Don’t trust any random broker out there. Do your research, understand his background, and if you find something wrong, then stay away from him. But how would you find out which broker is wrong or right? The next point will help you figure out this.
3.Stay away from brokers who ask to invest regularly in stock market
The brokers take a brokerage (a type of fee ) for every transaction (buy or sell )that you make. This is the reason why they encourage people to invest and sell regularly. Remember that your broker will never be at a loss because he is taking money from you on every transaction regardless of whether you make or lose money.
So, always maintain a distance from these brokers because they are there to make themselves rich and not helping you out.
4.Diversify your portfolio in stock market
Always try to invest in more than one stock. Being dependent on one stock is not a healthy option, as mentioned above. Also, try to invest in stocks that are from different sectors.
For example – If you have invested in an automobile company, an IT company, and a company that makes medicines. Then even if one of these sectors slows down, then also there will be a likelihood that the other two sectors will perform well.
5.Grow everyday in stock market
Here is the truth: You will lose money one day or the other if you regularly invest in the stock market. It is inevitable to avoid loss. The point is whether you learn from that mistake or not.
The stock market is all about reducing the amount you lose and enhance the amount you gain. If the difference between the latter and former is big – You are doing something right.
Try to give at least one hour to understand how the market works, be consistent, and most importantly, be aware of what is happening around you.
So these were some of the mistakes that people make and methods to avoid them. Start with the basics, grow every day, and you will see wonders happening on your financial front. Hope you liked the blog and found it informative.
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