Five rookie mistakes to avoid in the stock market
When you start investing, you can make mistakes that can cost you a LOT of money. They say that all beginnings are difficult. But it doesn't have to be if you take some well-advised precautions.
Here are some of the classic teething errors that you should avoid as a new investor in the market.
Error No. 1: Investing in a product or industry that you don't understand
A lot of beginners are clutching at straws. They hear something from their neighbor, or on a podcast, and immediately dive in and buy shares in the tech company that they've heard is about to hit the jackpot. But when you ask them what they have actually invested in, they don't really know. Maybe it's something with drones or robots. Or maybe a vaccine for a rare but deadly disease.
Warren Buffett puts it very well. You must always invest within your "circle of competence", i.e. invest in something that you have the skills to understand. On his desk there is a small tray with the words "too difficult", and there he throws out all the accounts that are outside his remit. You should do that, too.
Error No. 2: Investing in companies without examining the product or looking into the accounts
When you invest, you become a company owner. Consider the word. It has a little more responsibility over it than the word “shareholder”. Think of yourself as an owner when you have shares in something. As an owner, you need to have control of the product and see if the business is moving in the right direction.
When you look at the product, first look at whether you like it and whether you believe it has a future. You need to go to the store, see if there's a queue at the checkout. You need to touch the product (if you can), taste it (if you can), knock on it (if you can). In other words, you need to be sure that it is good quality.
When you look at the accounts, you should first of all look for sales growth, whether they are making money and examine how large their debts are. Then find out how expensive the company is, and whether it's the right time to go into it e-book Free Here.
Error No. 3: Buying shares while still having expensive consumer debt
You need to be sure that you can make a return that is higher than the interest rate on the debt that you have on the expensive loan. For example, if you have a quick loan at 20 per cent, you have to make a return that is higher than the 20 per cent — otherwise you will actually lose money. If you have loans with high interest rates, it makes sense to pay it off first.
Error No. 4: Responding to impulses, desire and fear
Being an investor is an affair that can really mess with your feelings. It may surprise you how gripped you can become by FOMO (fear of missing out) when the stock market is running up, and how scared you may become when prices start to fall.
Warren Buffett is known for saying that one should be greedy when others are timid, and timid when others are greedy. This means, of course, that you have to buy shares when the stock falls and sell when everyone talks about how incredibly well it is going. However, many people do the opposite. In particular, newbies tend to buy at the top of a bubble and sell on the way down the hill.
Remember to keep your head down and be rational.
Error No. 5: Doing it alone without taking courses or getting counselling
We could never dream of driving without taking the theory test and driving lessons first. We Would never think of throwing ourselves out into the 5-meter deep end without receiving swimming lessons and learning to swim.
We go for birth preparation before we have children. We go to a profession coach when careers are lagging. We go to couples´ therapy when a marriage is strained. We go to the doctor when we are feeling unwell. We go to choir, the psychologist, yoga...
In many areas of our lives, we accept that things are much easier if we just get the help we need, and aren´t afraid to ask for it. But when it comes to handling our money, a lot of people think they have to take care of it themselves. Why so? If you take courses and get guidance, you can't alone avoid losing a lot of money. You can also manage to get a better return.
Not only will it give you peace of mind – it's also a good financial decision to seek knowledge about investing before you start.
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