Avoiding Making Big Losses In The Share Market: A Stepwise Guide
Investing in the share market is all about wins and losses. Nobody is perfect and every investor at one point in time has undergone losses and earned profit. One of the most common sayings on Wall Street is, ‘Cut your losses and let your winners run’. Solid piece of advice, but most of the investors do the exact opposite of this, selling stocks after a small gain only to watch them head higher, or holding a stock with a small loss, only to see it lose even more. Most of the mistakes that lead to losses are common amongst the majority of investors. Not learning from previous errors is probably the biggest mistake an investor could possibly make. The good is that a large portion of these slip-ups can be dodged just through some awareness. In this article, we will discuss and look at the common mistakes that should be dodged to avoid making big losses in the share market.
#1. Buying shares in a business that you lack knowledge about:
Time after time, investors gravitate towards the most recent cool sounding businesses. They may barely have any knowledge, about technology, or biotech, or the exact business the primary company is a part of. The first step is understanding the business and knowing the ideology behind it, in which case you have a natural advantage your competing investors. The more you know about a business, the more you can track how well the underlying stock may perform. Hence, always try to buy shares in a business you know a lot about. You can obtain all the information about businesses and share market live on the internet.
#2. Keeping too many expectations from the shares:
You need to understand that investing in the share market is not like buying a lottery ticket. Most of us expect a small investment in the share market to earn us a small fortune. Although it does happen at times, it is very very rare. But it is not the correct think process if you intend to get into investing. A realistic approach about what to expect a trade is necessary.
#3. Following the crowd:
Investing in the shares of an organization only because your friend or your relative has done so and asked you to do the same is an absolute no. Also sometimes you become aware of some stocks due to media coverage. Most of the time, you get to know about these kinds of investments after it has already performed well. The investment is then overvalued by this point, and investing in it is not worth the effort.
#4. Not setting a goal in before investing:
Making investments without considering your overall monetary situation and how various factors such as income, liabilities, insurance (life and non-life), ventures, retirement, tax and inflation would fit into it is a recipe for disaster. Keeping your financial prerequisites and objectives will assist you in outlining a venture plan that is perfect for you. Having a goal to your investment plan helps you maintain a strategic distance from significant mix-ups with regards to investing.
#5. Not consulting an expert:
In this fast-paced life, most of us neither have the opportunity nor the skill to make speculations regarding investments. Due to which deciding where to put your hard-earned money becomes difficult. So, we often end up buying stocks recommended by friends and family. Rather than buying stocks with no information, it is smarter to consult a qualified financial advisor who will understand your requirements and help you make an investment plan keeping in mind your risk appetite. A decent financial advisor will assist you in building a broadened portfolio and simultaneously help mitigate your risk.
Understanding the nitty-gritty of the share market and investment in it is a time-consuming process. Every investor becomes an expert by learning from their past mistakes and wins. By following the pointers mentioned above, you can avoid making big losses in the share market.