The Ten Most Common Investing Mistakes
Buying what you don’t understand.
Many people buy shares on the advice of others, rather than first understanding the company they are buying into. That hot tip from a close friend to get into a Biotech company that has this fantastic new machine on the market, which you cannot spell, is full of danger for the new Investor. Always take your time find out as much as you can about a company and its products before laying any cash out. The Internet, Newspapers, even writing direct to a company for any free Investor information is all worthwhile to build up a picture. The chief enemy of ones new journey into stock market investing, is the person who tries to rush you.
Focusing on Short Term Performance
Investing in the stock market should be a long term decision. One of the most famous investors Warren Buffet once said that a good investor prefers a falling market, even though he is losing money. This is because there are lots of buying opportunities which will realise even greater gains in the future. The person who looks to the stock market for short term gains will find much of his profit also eaten up in commissions.
Finding you becoming Bearish.
Bull and Bear markets. Bears tend to think that a glass is always half empty whereas a Bull thinks of it as half full. A bull is a person who sees the market as going in an upward direction. A bear sees it as going the other way. There is no exact right moment to enter the stock market. But the long term investor is not afraid of a Bull or bear situation. Since 1918 the London Stock market has returned on average over 12% every year. Therefore for a long term investor, his money has in fact doubled every six years.
Believing the Financial Press is Expert.
What sell in Newspapers is usually disasters. So in effect they do not have the individual investor’s interest at heart. They certainly do not look at the factor of time when deciding if you should buy shares. Again Warren Buffet can give an interesting insight. He has said that he never looks at the financial press when deciding which companies to buy into.
Concentrating your attention on share price.
Is it more interesting to buy into a company with a share price of 150p or a company with a share price of 1500p? The answer would be to look at the total value of the company. If these were the share prices of two exact similar companies in similar markets and company A had 100 million share is issue its value would be 100,000,000 X 150p or 150 million. If company be had only 5 million shares in issue its value would be 5,000,000 x 1500p or 75 million. Company B would therefore be undervalued.The fair price of a company therefore depends not on its share price, but on the Companies total value.
Buying Penny Shares.
These are companies who usually have a very low market value. To invest in them is to risk losing all of your money. Although the potential to gain is much higher than with a normal priced share, the risk is also much higher.
Not tracking your Investment Returns
Always measure your portfolio returns against the rise or fall in the market in general: It may be that you feel you are making a great profit, but if the market overall has risen faster than your individual gains then you are investing in the wrong shares.
Not diversifying your Portfolio.
Always spread your risks when investing. A golden rule should be never to have more than 15% of your initial investment in any one share. Secondly if your portfolio grows in value, never let any one share increase so that it becomes worth more than 25% of your total investments. In such a case, start to sell off this company to bring the ration back in line.
Not being Online.
Use the Internet to get information on companies and to do your own research. Setting up a portfolio on line (as I show in my web site) helps you to keep track of your shares and investments without the need to buy newspapers or watch TV.
Spending far too much time on Investing.
Never let investing begin to rule your life!
