Most people have an incorrect view of investing when they get started. Some of them believe that speculating and investment are one and the same when they aren’t, for instance. They go in with the mindset of day traders when day traders are traders, not investors. Investors should be in it for the long haul and truly be, act, and feel like they’re the owners of the business they invest in. This is just one of the ways that people get the markets wrong, but many misconceptions can end up hurting the progress of new investors. Let’s take a look at some beginner mistakes that you should avoid at all costs.
Investing in Sectors You Don’t Understand
One thing Warren Buffett always says is that he refuses to invest in sectors he doesn’t understand. This is why you should consider investing in industries that you understand or are willing to learn about.
The reason why it’s important to understand the sector in which the company you’re buying stocks in operates is that you’ll be better able to understand the impact of their decisions on the market. You’ll know when a certain announcement is likely to please consumers and lead to higher sales and which ones could get a negative reaction. You’ll also have historical evidence you can compare data against.
The second option is to go with mutual funds and ETFs and let someone else pick them for you. Here, it’s the reputation and track record of the advisor you go with that will matter. A robo advisor can work just as well, as long as you pick one with a solid reputation. If you’d like to see a few good ones, you can check out this list.
Not Going for the Long Haul
You should know that there is more to the stock market than just buying stocks and reselling them later at a higher price. The most successful investors have stock that they sell and stock that they know they will hold forever because they love the company and the returns they get on dividends. This is why you need to get familiar with things like dividend yield and factor it in when picking stocks. If you’d like to get a look at some possible options, all of these stocks offer extremely high yields.
Getting Attached to a Stock
One thing you should never do, however, is fall in love with a stock. We all want to see the stocks we invest in do well, but if some of the fundamentals that made you invest in the stock are changing, then you may have to consider selling, especially when it’s reflected in the stock’s price action. If you notice that the company has a vision change that you don’t like, for instance, or you don’t like the new leadership, forget the name and look towards the future.
Trading the News
News and signals alone are not enough for you to make decisions on stocks. They can help, of course, but they can also muddy the waters. Some news may look worse than it actually is and mean nothing in the grand scheme of things. You have to use patience and, again, look at the long term, as asset allocation will have a greater effect on your returns than the actual timing of your trades.
Beginners are bound to make mistakes when trading, and these are just a few you’ll need to steer clear of. Don’t be afraid to make mistakes, however, and try to minimize their impact by starting small and taking baby steps.
Founder Dinis Guarda
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