We’re held back or have reverses not because of our strengths , but because of our mistakes and weaknesses that we do not recognize, face and correct. It is much easier to have excuses and alibis than it is to examine your own behavior realistically.
The difference between successful people in any field and those who are not so successful is that the successful person will work and do what others are unwilling to do.
It is definitely possible to learn to invest with intelligence and skills. Many people have learned how to use sound rules and principles to protect and secure their financial affairs.
It takes time and little effort to get things right, but it’s worth every minute you spend time on it. You can learn to invest with knowledge and confidence to protect your money and find and properly handle highly successful companies.
Lets look at some key mistakes that you need to avoid once you get serious and make up your mind that you want better investment results.
Costly Investor Mistakes
1. Stubbornly holding onto your losses when they are very small and reasonable.
You don’t want to take a loss, so you wait and you hope, until you losses gets so large it costs you dearly. Always cut your losses immediately when a stock falls 7% to 8% below carefully analyzed purchase price. Following this simple rule will ensure you will survive another day to invest and capitalize on the many excellent opportunities in the future.
2. Buying on the way down in price, thus ensuring miserable results.
A declining stock seems like a real bargain because its cheaper than it was few months earlier. Most retailers will not know about the genuinely concerning reasons for stock decline until the price action has already taken place. Hence avoid buying stock on the way down.
3. Averaging down in price rather than averaging up when buying
When you buy a stock at 100, then buy more at 60 , you are following your losers and throwing good money after bad. This amateur strategy can produce serious losses in few individual stocks and weigh down your portfolio with a few big losers.
4. Not learning to use charts and being afraid to buy stocks going into new highs.
The public generally think a stock making a new high is pricey . The best time to buy a stock during any bull market is when the stock initially emerges from a price consolidation or sound base area of previous 7-8 weeks.
5. Having poor stock selection criteria and not knowing what to look for in a successful company.
You need to understand what fundamental factors are crucial and what are simply not that important!
6. Not having specific general market rules to tell you when a correction in the market is beginning or when a market decline is most likely over and a new uptrend is confirmed.
Its critical to recognize market tops and major market bottoms to protect account from excessive giveback of profits and significant losses. You can’t go by personal opinions, news , your feelings. You must have precise rules and follow them. People wrongly think you can’t time the market.
7. Not following you buy and sell rules, causing you to make an increased number of mistakes.
The soundest rules you create are of no help if you don’t develop the strict discipline to make decisions and act according to your historically proven rules and game plan.
8. Concentrating your effort on what to buy and, once your buy decision is made, not understanding when or under what conditions the stock must be sold.
Most investors have no rules or plan for selling stocks. Meaning that they are doing only half of the homework necessary to succeed. They just buy and hope.
9. Failing to understand the importance of buying high quality companies with good institutional sponsorship and the importance of learning how to use charts to significantly improve selection and timing.
10. Buying more shares of low-priced stocks rather than fewer shares of higher-priced stocks.
Many people think they are getting a lot for their money by buying low priced shares compared to higher-priced, better-quality, better-performing companies. Think in terms of invested amount and not the number of shares you can buy.
11. Buying on tips, rumors, split announcement, and other news events; stories; advisory-service recommendations; or opinions you hear from other people or from supposed market experts on TV.
Most rumors and tips you hear simply aren’t true. Even if they are true, in many cases the stock concerned will ironically go down, not up as you assume.
12. Selecting second-rate stocks because of dividends or low price/earnings ratios.
Dividends and P/E ratios aren’t anywhere near as important as earnings per share growth. Please keep in mind that you can lose the amount of dividend in 1-2 days fluctuation in the price of the stock. A low P/E is probably low because the company’s past record is inferior. Most stocks sell for what they’re worth at any particular time.
13. Want to make a quick and easy buck.
Wanting too much too fast - without doing the necessary preparation, learning the soundest methods, or acquiring the essential skills and discipline - can be your downfall. Chances are you will jump into a stock too fast and then be too slow to cut your losses when you are wrong.
14. Buying old names you’re familiar with.
Many of the best investments will be newer entrepreneurial names you won’t know , but with a little research , you could discover and profit from them before they become household names.
15. Not being to able to recognize (and follow) good information and advice.
Friends, relatives, some brokers , and advisory services can all be sources of bad advice. Only a small minority are successful enough themselves to merit your consideration. Outstanding stock brokers or advisory services are no more plentiful than outstanding doctors, lawyers, or ball players.
16. Cashing in small , easy to take profits while holding your losers.
This is exactly the opposite you what you should be doing; cutting your losses short and giving your profits more time.
17. Worrying way too much about taxes and commissions.
The name of the game is to first make a net profit. The commissions associated with buying and selling stocks, are minor compared to money to be made by making the right decisions in the first place and taking action when needed.
18. Speculating too heavily in options or futures because you see them as a way to get rich quick
The limited time period works against you in most of the short term holds . There can be n reasons whether known or unknown why market can move in opposite direction of your holdings.
19. Not looking at stocks objectively
Many people pick favorites and cross their fingers. Instead of relying on hope and their own opinions, successful investors pay attention to the market, which is usually right.
Source : How to make money in Stocks : A Winning System in Good Times or Bad