Warren Buffet famously said that while investing is simple, it is not easy. There are natural reasons why this is true. For example, people want to avoid losses through holding on to unprofitable accounts because they fear losing and assume the market will become better. Society also teaches people to independently persevere until they succeed. However, the investing market plays by its own rules. Here are five of the most common investing mistakes.
Buying on Speculative Tips
Unfounded tips often come from friends or TV financial personalities. Tips from friends will likely be mere rumors and TV tips will simply be exciting, media friendly sound bites. If it’s too good to be true, then it probably is and it will cost you dearly. However, tips are an excellent opportunity to research the source, learn something new and verify through your licensed broker.
Buying Cheap Stocks
Many people mistakenly assume that a fallen share price, based on the 52-Week High/Low, means a good buying opportunity. However, cheap stocks are typically the tip of the iceberg when it comes to stock health. That is, they indicate the beginning of a major downward spiral without hope of a turnaround. In addition to this, micro-caps and penny stocks and notoriously full of scams and subject to many misleading stock tips.
Day trading involves investors trying to make a quick profit through closing trades before the close of market. Only veteran investors with special software, powerful computers and disposable funds are qualified to engage in day trading. Keep in mind that a few milliseconds can mean the difference between a minor or major loss. In the end, day trading is a high-risk, high-pressure endeavor best left to only the most experienced investing professionals.
Lack of Self-Confidence
Taking a cautious approach to investing is a mark of a proficient investor. However, the art and science of investing is based on experiential knowledge and common sense. Therefore, small investors simply need to learn from their mistakes, continually research, ask the experts and trust their intuition. In fact, making controlled risks are an excellent way to improve your market forecasting abilities while turning a profit.
Lack of Diversity
According to investment expert Brad Reifler, diversity is one of the keys to investment success. Reifler is an experienced investment expert who is currently the CEO of Forefront Capital Management. Reifler points out that the most successful investors strategically spread their investments among different funds, such as hedge and commodity funds. However, only super wealthy, who make up the top 1 percent of the investment industry, can typically access these funds. In order to provide more opportunities for the remaining 99 percent, Reifler created the Forefront Income Trust to help middle class investors diversify their accounts. More diversity means less risk and more profits.
To sum up, beginner investors should avoid common investing mistakes, such as buying based on ungrounded tips or low stock price.