What Most Investors Are Doing Wrong?

At any given point of time, one can find investors who have made fortunes out of the stock market. Also, it is equally easier to find people who have turned pauper due to their investments in the share market. Why this contrasting result when the market conditions were the same and applicable to both type of investors?

Real Stock Ideas, the SEBI registered advisory dived deep into this and has found certain traits that separate the winners from the losers.  Some of the traits of the losing investors are:

• ·         Losers prepare less or not at all.

It is a common sense that whenever you are entering the stock market or have received a share tip from any source, it is important to do your homework right before investing. Such preparation could be in the form of planning the next day’s move thoroughly, going through the targeted stocks history, performance over the years, understanding the factors that will be impacting the stock in question and so on. Lack of adequate preparation is the single largest reason for failure in the stock market.

• ·         Letting your heart rule over your head.

Psychologically speaking, money equals ‘security’. Hence, it is quite natural for people to get jittery in cases when money is slipping out of hands or when it is increasing. In both cases, invariably the heart starts ruling over the head. However, this sure is a sign of danger. Any financial decision that involves one’s heart alone, is a risky one. Hence, whenever investors listen to a share tip and invest, and the stock does not perform as tipped, later in order to feel ‘secure’ they take the easiest way out, which may not be the right one always. Hence, it makes sense to let the head rule over heart in the share market.

• ·         Not keeping a record of their transaction

Keeping a record of all transactions is a good way to learn from things. By making an entry whenever you trade helps you reminisce the conditions under which any decision was taken. This helps the investor in the long run as this note serves as lesson, which could be reflected upon if such a situation arises in the future, rather than learning the whole thing afresh. Unfortunately, this is one habit that investors do not follow despite the fact that making a note is now-a-days is very easy.

• ·         Anticipating profits, always:

Real Stock Ideas feels that while it is important to always plan for profit, but it also makes sense to have an alternate plan if the profits don’t come by. The ways in which the investor is going to get out the loss situation needs to thought out at the time of making that particular investment. A smart investor always plans for profit, but at the same time has his ‘Plan B’ ready if things don’t go as planned. By keeping the Plan B ready, an investor can optimise the losses or preserve the extra profits done on a particular investment. However, not having a Plan B is a recipe for disaster.

• ·         Relying too much on mechanical devices

Now-a-days, technology has made investing a very easy activity. However, technology has also brought a new evil – information overload. While modern day devices like computers and mobile phones can surely help an investor to fasten up the trading or investment process, they cannot replace the SEBI registered Advisors any time. This because such devices cannot think on their own and do not have the years of experience that a advisor firm has in the market. Hence, while it is advisable to refer to such devices for inputs, but investment should be done only after referring a qualified person or an experienced person. 

• ·         Lack of specialisation:

Lot of investors enter the market when the bull-run arrives and exit when bears start gripping the market. Such opportunistic investors ignore the simple fact that investing in the stock market is a job in itself. It is extremely difficult to not specialize and still attempt to benefit from the share market. While the degree of specialisation may vary, but surely it cannot be absent. However, for certain investors, who find specialising challenging, can rely on Advisors and take their investment decisions based on the advisor’s recommendations.

• ·         Attempting to time the market:

This is one of the common mistakes committed by investors. Even seasoned players in the market are wary of the timing in the market. If at they decide to time the stock market, then a general investor conveniently ignores the homework, specialisation, years of experience and expertise that have gone into making that investor successful. Waiting to time the market is a very high-risk proposition and should be avoided at all times.

• ·         Inability to move on:

One of the important behaviour patterns of a successful investor is to absorb a small loss and move on. If the successful investor realises that a particular investment was a wrong choice and is probably going to go from bad to worse, then the investor gets out of the investment immediately. However, a general investor holds on to the position hoping that the scenario will improve in future and he will not only recover losses but earn handsome profits too. Such wishful thinking may even turn in to reality at some point of time, but what this investor misses to realise is the opportunity loss that occurred due to the wait & watch stance. 

• ·         Herd Mentality

Probably the most commonly exhibited behavior is the herd mentality. This behavior is exhibited in droves when the stock market sees sharp rise and falls. Not realizing the reasons behind this sudden jump or fall, investors end up following the herd and invariably end up making losses, which take time to recover.

Hence, Real Stock Ideas provides investors with regular share tips to avoid loss making investments. At the end of the day, it is the investor who has to keep a level headed approach while investing in to the share market. History is replete with examples of people who have immensely benefited from the stock market by following some of the above-mentioned simple tips.