While selecting the right stocks is one part of your investment process, the other, equally important part is to avoid making mistakes that will result in your investments losing value, or worse, converting into losses.
1. Stubbornly holding on to loss-making stocks:
Stubbornly holding on and rationalizing that, ‘My losses are very small and reasonable. The price will rise, I’m sure!’
2. Buying cheap:
Buying a stock whose price is falling with a belief that, ‘I am buying cheap!’
3. Averaging down:
Averaging down rather than up, thinking that, ‘The price is falling; I’ll buy more to reduce my cost!’
4. Buying low-priced stocks:
Buying large amounts of low priced stocks. It’s preferable to buy small amounts of higher priced stocks.
5. Trying to make an easy buck:
Trying to make a quick and easy buck from the stock markets.
6. Following rumours, tips:
Following rumours, tips, stock market opinions aired on TV
7. Investing in poor-quality stocks:
Investing in poor-quality stocks just because they are available at a low price-earning (PE) or because of dividends
8. Using flawed stock selection criteria:
Using flawed stock selection criteria; not knowing what to look for in a successful company
9. Investing in the familiar:
Investing in companies just because you are familiar with the name.
10. Not understanding stock charts:
Not being able to read stock charts
11. Afraid of investing in new highs:
Afraid of buying stocks that are rising and making new highs.
12. Selling to quickly:
Selling too quickly to book small profits instead of holding till the stock price trend turns downwards.
13. Holding losses:
Holding on to losing stocks.
14. Too much focus on tax, costs, etc.:
Giving too much importance to tax, brokerage and other trading costs.
Speculating heavily in futures because you think you can make large profits quickly.