Investing in equities would mean that a person or an investor is buying and selling shares of a company to gain profits. And obviously, in order to make a substantial amount of profit, the investor would want to buy at a discount and sell at a higher price to gain a maximum difference. It may seem simple enough to read and maybe even to start investing. But there are a lot of common mistakes that investors make while investing in equities. Or even other financial instruments in general.

 

Now, keep in mind that the stock market is subject to market risks, and however you try to minimize your risks, the risk aspect would still loom over the investor like a dangling sword. But fear not, there are as many success stories as there are stories of losses. You need not fear investing as long as you know the errors that you could make. By already knowing the types of mistakes that investors make, you could avoid making them in the future altogether.

 

1. Investing late : Investing in the stock market is something that is really up and coming, and it's creating a frenzy among young adults who are ambitious and concerned about their future. Therefore, anybody who is not investing at an early stage of their life is missing out on a lot, and it can be considered as a financial error in the first place.

 

2. Not having an investment plan : Who doesn't like having a safe and secured retirement life, free of all debts and commitments and enough money to last till the end of life? If that isn't your end goal, well, you might have other goals as well, like buying a house or establishing your own business etc. But ultimately, it all comes down to money. It would be best if you had it to survive, and you really need them more to live well and have a good lifestyle. And the stock market is an excellent place to get started and to make huge returns and take a first step towards achieving your dreams.

 

3. Don't be scared even if you are young and just starting : If you are starting young, it has quite a few advantages. One is that your time frame will be longer, which means more compounded income on interest. Therefore investing in the stock market would mean that you will be making more money than you could have if you had started a fixed deposit at a bank. Two, even though there is a risk, you can always bounce back and have a go at it a second time, even if you have lost some capital. Being young means that you have the freedom to make mistakes. Therefore, in short, as young investors, you should have an actual financial goal and plan how to achieve it and work towards it. Usually, investors stop at having a goal, but they may not have a credible plan to achieve it. Therefore, try not to get stuck in the planning phase and get through it.

 

4. Patience is a virtue : You should know that dreams take time to come in to fruition. So, if your dream is to make a few million before the age of thirty-five, so that you can stop saving for your retirement or for anything else for that matter, then that's just wishful thinking. Be patient and understand that all good things come to those who wait. However, don't wait for too long if you are a short-term investor. If you are a long-term investor, on the other hand, time is a factor that you have to consider for making a financial goal. For a short-term investor, their time frame can change from a minute to a couple of months and, at most, a few years. But even then, patience is a virtue that every investor should have.

 

5. Rushing into the stock market to make some quick bucks : It might happen in movies and fantastical stories, but in real life, you will have to be prudent, focused and dedicated to making quick money. Or it would help if you were having immense luck. But do you want to place your money in the hands of fate and luck? These fleeting moments may happen in gambling, but trading in the stock market requires research and knowledge. Therefore, be calm and composed and treat the stock market with the respect it deserves.

 

6. Choosing the correct stocks : The stock market has got hundreds and thousands of shares and stocks whose companies are listed. Therefore, one might wonder how to choose from this sea of shares. Another mistake that investors make is when they are choosing the wrong stocks for them to invest in. But choosing the right stocks shouldn't have to be such a complicated affair. Having said that. Keep in mind one thing.

 

7. You should only invest in a stock whose business you understand : If you understand and get how those companies are making money, then half the problem of choosing the stocks is solved. The second half of the problem will be based on your financial requirement. And based on it, stocks can be the large cap, mid cap etc. You can choose from these various types, and all of these stocks can be sorted and filtered out and found using tools that are readily available in the market.

 

8. Not diversifying enough : There is also the case of diversification. Choosing the right stocks alone is not enough to create a good portfolio, though. Sometimes, investors make the mistake of choosing stocks that are performing well, but they might be stocks of businesses that are complimentary to each other. Therefore, if one goes down, the other goes down too. Even though this is one of the worse case scenarios, it should be foreseeable. Therefore, try not to invest in stocks that are from the same sector.

 

9. Fraudulent practices : The stock market is an enormous entity with a huge number of individuals participating. Therefore, you should understand that the demographic is highly varied, especially in a country like India. So, you should expect people of all kinds to approach you, offering help and tips. In the age of online classes, you shouldn't be surprised to see a one-day crash course program on the stock market. But if you see such an advertisement, try to breathe in the other direction. Learn the basics from valid and legitimate sources and websites, read books and research. And most of all, your experience should be your most prominent teacher.

 

10. Don't try to be a part of the herd : You might see a trend in the stock market when a certain company is in the lime light. But please do note that, there can be fake demand in the market and if you haven't done your research well and is just investing in one or selling off your shares then, you might get in deep trouble. Trust your guts and instincts but don't let others feed it to you.

 

People make mistakes, but that's not something that we can avoid as no one is perfect. But we can be better if we can learn from our mistakes. And reading articles such as these would give you a warning about the possible mistakes that you could make. But sometimes, you may still make them, but at least you might have avoided one.

Author

I am Rohit Srivastava, Founder of IndiaCharts, and I have more than 18 years of experience working at Sharekhan as a Fund manager. In Dec 2019, I Launched the Indiacharts Mentorship Program, the most comprehensive Learning experience for Serious and Passionate traders/investors wanting to get the A-Z of what I call ‘Complete Market Analysis’ in one place in a rigorous three-month experience.