Why are people not investing? For sure, admission price is not included in the list of the reasons. It’s pretty much accessible to everyone who is willing to reserve some money for investment. So, is it the unstable state of the stock market? Or maybe people are afraid to lose their money in buying equities.
Of course, there are some risks in this area. But that’s good because it keeps the investors grounded. Therefore, it’s better to be knowledgeable about this matter before starting.
The following are tips from the experts to avoid the common mistakes when investing.
1. According to Cristina S. Ulang, the research head of the First Metro Investment Corp, the stock market is full of risks. The prices of stocks can escalate or plummet instantaneously. Therefore, the investors should be ready about the unavoidable losses should they decide to join the market.
They should not expect a quick return on their invested funds because it typically takes several years before they can fully recover them if ever the prices of stocks decreased in value. Therefore, investors should have their emergency fund separated from their investments. This is to prevent them from withdrawing their investments if unforeseen expenses arrive.
Amateur investors tend to focus on their emotions when deciding but pros will concentrate on the fundamentals of the stock market. First-timers will follow the developments and movements in the market, and that is where the entry prices are bad because it is susceptible to losses after the correction in the market. On the other hand, when investors analyze the fundamentals, it will lead them to the right company which will give them the confidence to clutch on the stock even if the market fluctuates.
Timing is not the key to the stock market because it’s hard to accomplish. An investor would buy shares when it reaches rock bottom, and they will sell when it reaches an all-time high. But then again, that is tough. What investors can do is to invest in the right stocks which are profitable and have good management.
2. According to Jose Mari B. Lacson, head of Equities Research at ATR Asset Management, traders and investors should make a strategy first. What they must do is to create a plan in the different aspects of the investment or trade. For example, they must identify the particular stocks to buy or sell. What are the things that could cause changes in your plan? People tend to think only about the stocks to buy, but they forget to plan from start to finish.
Don’t be cocky. Gaining your first profits from the stock market doesn’t make you a guru or an expert. The ingredients of success in the stock market include having a trade plan and discipline. Sure, doing your homework can add to that but if you think that you have a golden touch; it might cause you bigger losses in the future.
Don’t think that the success in the past will continue. Don’t trust too much on the trend. History doesn’t repeat itself always. Nothing lasts forever. Look forward and analyze the market. Don’t just depend on the profitability of the company. Be sharp.
The bottom line is that investors and traders must do their homework. Otherwise, they can pick a good broker who will do the job for them, though it would be costly.
3. Jaycee De Guzman, the founder of Moneycules Consultancy Services (parent company of the Stock Signals Philippines), said that all investment decisions should be based on these three fundamental elements: personal financial goals, personal investment horizon, and personal risk tolerance.
De Guzman said that newbie traders and investors must learn how to do a fundamental analysis to know which stocks are fundamentally sound. Learning technical analysis is also of equal importance to know where to buy and sell. He does not believe in the “sell in May and go away” mantra but in having a well-thought trading plan. He said, “You don’t sell because it’s May. You don’t sell because your friend is selling. You sell because the reasons why you bought that stock, in the first place, are no longer in your buy case. In short, you sell because your trailing stop-loss price was already hit.”
According to April Lee-Tan, Head of Research at COL Financial Group Inc., timing is not a good practice. It may cause the investors to buy higher and sell lower because of the emotion factor. People who have the ability to hold the stocks in long-term are more likely to gain higher returns. Investors can also beat the volatility of the stock market if they lengthen their holding period as the prospective losses shrink significantly.
Doing your homework is still the key. Don’t concentrate on few stocks. Diversifying will save your portfolio. If buy stocks in only one or two companies, that could be a bad habit. You can overcome this mistake by buying funds and not individual stocks. Don’t trust the “right” time and instead invest your money when they’re available. Do not overtrade. Again, analyze and pick the stocks and funds. Finally, think on a long-term basis and don’t expect fast returns.