7 mistakes that first time Investors make in the stock markets.
Updated: May 9, 2019
1. Looking for stock Tips from here and there!
Nothing in this world is for free.When something is for free you are the product(Like google they sell the data about you).
A common question from retail investors
“Market ka kya lagta hai?Kya buy sell karu?”
Recently one of Investors shared his plight:-
“On advice of 2 TV channel experts around 2 yrs back, I purchased RelCap at around 655, they said "fair value" of RelCap is around 900. I sold it today at 128.80....I m sharing my loss just to make those watching business channels to be very careful”
Stock tips are poison and Retail Investors should never invest based on any tips!
2. Looking for quick money!
Most investor ask a common question:-
“Tell me a stock that will double in six months?”
Most often than not they end up in poor quality companies and end up loosing all the capital that they have.
Investors should appreciate that good investment grade companies will give not give high returns.They will give returns steadily but consistently.
3. Selling your winners to Early!
Bajaj Finance is a phenomenal company which has given relentless returns.
I recently met one Investor:-
“I held 1000 shares of Bajaj Finance which I sold around the demonetisation time at Rs 850. Today the stock trades at Rs 3000.”
Ask some investors who sold HDFC bank anytime in the last 15 years and you’ll know.
The companies who have a very long run ahead with good growth run by good management shouldn’t be sold no matter what.
4. Not selling sure shoot losers in the hope of recovery!
Everybody makes mistakes!
One can make a mistake by investing in a bad quality company!
But the bigger mistake one can make is to not sell the shares in the hope of recovery.More often than not the remaining capital also gets wiped out.
After Jet Airways was grounded,one Investor told me
“I hold Jet Airways shares at 500Rs/share.How can I sell it at 126Rs/share and incure such a big loss?I will wait for the share price to recover.”
In reality the value of Jet’s equity should be zero and he should not even get 126/share.
5. Selling winners to average down the losers!
Selling a winning company to buy a loosing company can a sure shot recipe for disaster.
One of the investors:-
“I sold my shares in Maruti to invest in the shares of Jet Airways.”
Volatility is the other name for stock markets.Shares of both good and bad companies fall.When averaging investors need to first evaluate the quality of a company!
One should never average down shares of a bad company.
6. Making your decisions with respect to price rather than the fundamentals!
In the stock markets Bhav Bhagwan Che!
Tata Motors is up 30% in the past month and now everybody wants to buy the stock!
Stock goes down....mindlessly sell it!
Stock goes up....mindlessly buy it!
Who cares about the business!
7. Not hiring a financial advisor!
Most people want to save money by not hiring an advisor but end up loosing even more money by investing themselves without studying the fundamentals of the company.
I know everything above is easy to talk about but difficult to implement.
Remember there is no free stuff in the world; It requires Intelligence, Patience, Persistence and the will to never give up to succeed in stock markets.