Common Mistakes made by Investors

by Manshu on September 26, 2006

in Articles

 

 

The individual investor often makes certain typical mistakes that will eventually cause him to give up or to lose everything.

 Believing every investment you make is 100% safe
Any investment implies a certain risk factor that is determined by a multitude of factors. Disregarding these factors leads to wrongly evaluating the wining possibilities. 

Great expectations
Those investors that neglect risks also have great expectations regarding the general profits. In this case disappointment will occur, maybe even sadness or desperation when they lose the final investment also. 

Not doing your homework
You must be as informed as possible about your investment, about its risks and the credibility of the brokers and company administrators. 

Not diversifying the portfolio
When we say investment portfolio, we mean all the investment a certain person has made.
Through diversification the investor will attempt to cover through profits some companies that might register losses. Regarding the optimal rapport between winning and security, a portfolio will have a pyramidal distribution of the stock types. The biggest investment will be done in companies with minimum risk and maximum security like governmental bonds. Climbing the risk stair the number of investments will decrease. Investments in extremely risky companies will represent a low percentage of the portfolio. 

Being greedy and/or being afraid
Greed never pushes to safe investment. Through greed you will only make investments that don’t stand a chance. Fear will determine a rather calm and secure behavior that won’t bring you losses but will cause you to flip over great opportunities. 

Investing because of a “tip”
An investment has to be done accordingly to the needs and risk tolerance of every individual. These two elements are unique and like fingerprints are always different, the same way there can’t be two persons with identical needs and risk tolerance. So, if an investment is an opportunity for the one that who told you the tip, it doesn’t mean it is for you too. 

Not giving up on time
This is a mistake that can be hardly eliminated. It’s hard because the market fluctuates anyway and investors can’t say when it’s just a normal day or if the stock price is really going down. Many people won’t admit they made a financial mistake and don’t want to give up their stocks. It has been statistically proven that in these cases things go from bad to worse.
Avoiding such situations is difficult even for a pro who usually has more information that the individual investor. 

Investing only short term
Avoiding, or reducing this risk can be achieved by investing long term in profitable stable companies. In these cases, bad yearly evolutions can be recovered through better years. 

Thinking you are the smartest
Every investor bases his decisions on information he knows at a certain moment. Not wanting to hear advice or to hear new things, does not make you smarter, it brings you a great disadvantage and you will only put on hazard with your investments. 

{ 1 comment… read it below or add one }

Jojo Joson December 19, 2011 at 1:24 pm

I think you can add one more: “Not keeping track” of your investments periodically.

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