|Basic mistakes that are often made
The world of stock investing is complicated and often unpredictable, so making mistakes, especially at first, is almost inevitable. But don't be discouraged! Here's a short list of the most common mistakes new investors make to avoid a bitter pill to swallow with their first few investments:
Not seeing the long-term picture. Many new investors get desperate when they see their assets start to lose value and sell just before there is a price rally. When buying stocks, you need to be clear about how much money you can afford to lose and how long you can wait to see returns. It is common for long-term investments to show temporary losses, but if you really believe in the companies you are investing in, it is often necessary to wait for certain negative seasons to pass.
Overestimating your luck after a good run. On the other side of the scale, many people who have good luck on their first trades decide to increase their investment amount and end up losing more than they originally planned. To avoid this, it is very important that you stick to your initial financial strategy and not be tempted to increase the limits you designed in the first place.
Getting carried away by "analysts" of dubious reputation. The Internet is a wonderful source of information for all kinds of investors thanks to the enormous diversity of points of view that we can find in blogs, YouTube videos and specialized forums, among others. However, this great diversity of information also implies the existence of many self-styled “experts” who can disseminate false or unsubstantiated information. Never focus on one person's opinion and always make your own decisions based on diverse sources.
Put all your eggs in one basket. The diversification of an investment portfolio is essential to mitigate risks. When you invest in only one company or only one industry, the risk of an unexpected event derailing your investment plan is greater. Having your investments diversified across different industries and companies will give you peace of mind in case one of your investments crashes.
Falling for the “sunk cost fallacy”. The sunk cost fallacy is a psychological delusion in which we struggle to admit defeat and try to recoup losses by injecting more capital into a project that has clearly already failed .Just as it is important to wait out certain downturns, it is also extremely important to know when to accept our losses and stop them at the right time.