Here’s a list of 10 common mistakes you should avoid if you wish to be successful in your trading career.
1. Lacking an investment plan
“Don’t make a journey without packing the map”. A pre-planned asset grant generates good results and gets shot of emotional panic selling.
2. Buying inexpensive stocks
“Road crews erect “Dead End” signs for a reason”. Most stocks with low share costs also arrive at the bottom for a reason. There should be institutional interest to persuade price, and many will not even peek at stocks under 10 dollars or 8 dollars.
3. Purchasing story stocks
“A good myth lulls a kid to sleep”. Do not get taken by pressing “story” stocks. The plots include a treatment for cancer, a massive oil strike or an incredible invention. Such promising stories infrequently prove correct. If the “story” materializes, the company will continue to be a buy.
4. Selling your winners
“you have to know when to hold ‘em’”. Don’t sell your winners. These firms mix major management, product and money flow, making steady expansion for a long time. Holding these corporations for the long term will compensate for other investing mistakes. In reality 1 or 2 giant winners can create real wealth.
5. Holding onto a topped stock
“Trees don’t reach to the heavens, and corporations don’t continue expansion beyond reason”. Top companies top for reasons like attrition of top management or competition. Methodical pruning will help you in avoiding a decaying, unhealthy investment.
6. Under diversification
” Concepts are good, but a mind stuffed with them is better”. Fight the urge to depend on 1 or 2 stocks that you know. Absence of portfolio diversification leads to uncertain and unstable returns, and owning a few firms in the same industry also isn’t diversification. The best investment results occur by making an investment in leading firms across assorted industries.
7. Too many options
“In life there’s often options, ( but timing makes the difference” ). When you purchase options, you have to be right and use excellent timing. Options permit a speculator to use leverage and control more shares but there are comparatively high spreads concerned in trading them. Many times stockholders lose cash on their exchange even after they followed correct hunches.
8. Over diversification
“A portfolio stretched like an old T-shirt will not help a stockholder benefit from their insight”. You do not create diversification by spreading yourself too thin. Though a mind full of ideas is good, concepts acted on on an impulse waste good thoughts.
9. Over trading
“Replanting a garden each week will not produce fine quality tomatoes”. Don’t follow market “noise” and bounce from sector to sector or theme to theme. This inhibits investors from enjoying the benefits of a long term winner. Give stocks sufficient time to age and compound.
10. Too much margin
“Living on borrowed time brings a burst of excitement, but it is a fast trip when time expires”. Don’t undervalue the damage margin can create. The comparatively minimal cost and straightforwardness of getting leverage takes stockholders down a perilous trail. When a portfolio on margin declines rapidly, it can catch even experienced speculators off guard.