Hello hello hello, it’s Baku again, here to tell you to STOP doing these usual stock market mistakes that make you lose money.
Besides losing money, these mistakes also increase your worry about your investments. They also make you spend time doing unnecessary things.
So, let’s talk about these mistakes and why they are mistakes, and of course, we also offer solutions for each one.
Mistake #1: Selling A Stock For A Loss (And Not Controlling Your Fear)
Sigh… I have seen this too many times, especially for beginner investors. But honestly, even investors of 10+ years also do this mistake.
This mistake happens when, for example, you buy a stock, and over the next few weeks/months after that, the stock price goes down. Then you see your portfolio with a LOSS and you start to worry.
Most people might sell their stock when they see it has a 20% loss or higher. They either get fearful because they see the huge loss, or they are impatient that the stock they choose has no gains yet.
However, as an investor, selling a stock at a LOSS is a HUGE MISTAKE. (Maybe if you are a trader, this might be fine, but definitely not for investors.)
The stock market, and your stocks, will go up and down every day. BUT as long as you choose a good company to invest in, it will spring back up in the future.
Why would you buy a stock just to sell it at a loss?! That does not make sense.
Also, just in case you’ve heard of this term, the concept of a “stop loss” is for traders, and it is not for us investors.
As an example, FGEN was a company that was doing well in their operations. Every year they would improve the company and always report profits. But even so, their stocks were going down and investors who purchased it were at a loss.
If you had FGEN shares, should you sell this stock that keeps going down? Of course NOT! Don’t sell at a loss.
Eventually, FGEN shares did recover after a few years and the investors loss slowly diminished and got replaced by gains instead! A happy ending for those who did not sell and waited patiently.
Prevention and Fix:
The best way to prevent selling at a loss can be done before you purchase the stock.
Do your research and determine if this is a stock that you really want to invest in. Only buy the stock that you believe in, and those stocks should be from businesses that are able to profit from their business activities very well.
(If you don’t know how to do research and what to look for, we have a guide on how to choose stocks using your broker info. It might look different from your broker, but the numbers and other info should be there. Click Here: Easy But Effective Way To Pick Stocks)
Then, when the stock is at a loss, remember why you bought it and check if those reasons are still true, do not sell the stock yet! Keep it, and one day it will still spring back up.
So, in short:
- Buy stocks only from companies that profit from their business activities very well
- Do your research that the above is true
- Never sell at a loss if the company’s operations are still performing well
Lastly though, the only exception here is that you should sell a stock when the business part is no longer doing well and is seen to continue to NOT do well in the future. Like if they declare bankruptcy, or their products become obsolete.
Mistake #2: Not Researching Before Buying A Stock
This is in connection to mistake #1 above.
I see too many people buying stocks that their friends recommend, or even worse, they buy stocks recommended by strangers on the internet.
While getting stock tips from others is not that bad, you should still confirm how good these stocks are by doing your own research.
Your broker will most probably have information on the different companies so you can just search from them.
If not, then there will be websites that can help you. Just google for them.
BUT, what will you search for? Well, the most important part is to determine if the company is earning well. If they are earning and consistently increasing their earnings, then good. If they have losses, that might be a sign they are a bad investment.
Below is an example from our broker, COL Financial (but your broker should have something similar). One of their features is showing the financial information from the different companies, but we’re mostly just interested in whether they are consistently earning or if they have losses.
A lot of people would invest in PAL (Philippine Airlines) just because they rode their planes and thought “this would be a good investment.” But is that true? Are they actually earning profits? Let’s check from our broker’s information.
PAL have losses from their operations (numbers in parenthesis are negative), which definitely makes it a bad investment.
Just to compare, here we have CEB (Cebu Pacific Air) which is doing better before the pandemic.
So, if we have to invest in an airline, we’ll probably go with CEB. Though airlines aren’t exactly a good investment right now, and for most times really. Still, this is a good and quick way to determine which companies are better than the others.
Another important thing to search is if experts would recommend them right now, especially at their price. Your broker should have something similar to this:
We can see that there are stocks that our broker suggest to BUY, and some to HOLD. Sometimes, they might also suggest to just SELL a stock.
Other things you can search:
- Understand how the company earns money (like how do banks earn?)
- Latest developments on the company
Once you did your research, just choose the best stock/stocks from it and invest in that.
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Mistake #3: Using Trading Techniques
There is a big difference between investors and traders.
If you want to do trading, then you should do trading and use trading strategies. If you want to be an investor, then you should do investor strategies and techniques.
The trouble comes when investors start using trading techniques, which can actually be detrimental to your success as an investor.
Let’s talk about a few examples:
First, we’ve already mentioned this but, a “stop loss” is a trading technique where you sell your stocks and just take a loss at a certain point. Like, if you set your stop loss at 20%, and your stock goes to that loss percentage, you immediately sell it and take the loss, and buy something else. Traders usually do this because they don’t have the time to wait for the stock to recover and would rather just take the loss and buy some other stock ASAP.
However, this is not what we want to do as investors. We’re happy to see a loss on stocks we like because this means that we can buy more of it at a cheaper price. So don’t sell your losers, but rather buy more and wait for it to go to gains again after some time.
Second, I see some investors try to predict as to whether the stocks will go up or down in the next week or next month. It is a known fact to investors that good stocks WILL go up after waiting for it in the long-term (about 7 – 10 years), but whether the stock will go up or down over the short-term (next week or next month) is incredibly difficult to predict.
If an investor tries to predict stock prices next week/month, they might lose the opportunity to buy/sell properly if their predictions are wrong. So, just buy the stock if it’s at a good cheap price and stop waiting for better prices. This also makes buying stress free since you won’t have to wait painfully for the stocks to hit your predictions. I mean, do you really like opening your broker account everyday to see if the stocks moved the way you want? Yeah, you should stop that.
There are probably others, but those are the biggest mistakes when it comes to investors using trading techniques.
Mistake #4: Worrying About “Lost Opportunities”
There will be times that you will notice that a stock might be a good buy, but you ended up not buying it. You might think you made a mistake because it seemed like an obvious buy, but that is not the case.
Worrying about these “lost opportunities” doesn’t contribute to your success. As long as the stocks you did buy are from good companies and you bought them at good prices, you’ll be fine.
Mistake #5: Not Having A Long-Term Thinking
I know a lot of you are extremely impatient, but you NEED long-term thinking to succeed.
No financially successful person found success in just a day or a week (unless you won the lottery or had a huge inheritance, I guess).
Even those amazing businessmen and businesswomen had to build, improve and expand their businesses over many years.
Investing is the same. There might be times that you will get gains in as fast as 2 – 3 years, but most of the time, huge profits will happen only after waiting for 7 – 10 years.
This is also why you should only invest money you save up for future big expenses, like buying a house or your children’s college fund, or your retirement fund, or even a luxurious trip to countries you’d like to visit.
With this in mind, whatever losses you have will be temporary in the first few years that you hold the stock. After the long-term, and as long as the business behind the stock is doing well in their operations, the stock should bounce back and give you profits.
Here are the stock investing mistakes you should NOT do as a list:
- Selling a stock at a loss
- Not researching the company before buying
- Using trading techniques
- Worrying about “lost opportunities”
- Not having a long-term thinking
Do your best to you stop making all of these mistakes so you invest better.
And as always, comment your questions below!
Good luck and we hope you learned something!
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