The purchase of shares and stocks may be a very enticing and at times very rewarding form of investment. However, there are many factors that make it difficult to achieve success especially for anyone who is interested in investing in the Indian stock markets for the first time. It goes without doubt that one can increase the likelihood of attaining the financial objectives in view if one is conversant with the pitfalls which are pretty known and how to avoid them. In this specific blog entry, we will centre our discussion on five major mistakes that investors should avoid as they start to diversify their investments into stocks and share market.
1. Neglecting Research and Due Diligence
Lack of adequate market research is one of the major blunders that investors can commit or have committed in the market. Of course, passion to get a fast profit severs time to think about the enterprise’s assets and liabilities, its position on the market, and, consequently, it has perspectives on future development.
2. Falling Prey to Emotional Decision-Making
Stock exchange is a dream with tremendous heights of joy and deep nadirs of fear. But relying on your feelings while making the investing decision is the best way to get it wrong. Some emotions that are likely to lead to irrational decisions include; fear and greed; these two emotions when experienced to extremities are likely to lead to impulse decisions. This is because when it comes to decision making, human beings give in to their emotions which is a sure recipe for doom especially when making investment decisions such as during the stock market crash panic selling or investing in those hyped stocks despite carrying out a research.
3. Ignoring Diversification
In the same manner that no-one wants to invest all his/her money in a single stock, nobody wants to have maximal exposure to one particular stock. Another generic mistake that most novice investors make is that they do not diversify their portfolio and end up investing in one company, one industry or one sector only.
4. Chasing Past Performance
Hence, success is a magnet by default; however, in the stock market, ‘history has a way of repeating itself,’ only that in this case, it does not necessarily mean that what happened in the past will happen again in the future. Investing blindly in ‘hot’ stocks or sectors with regards to their recent stellar performance is something that many investors are guilty of.
5. Neglecting Your Risk Tolerance and Investment Horizon
It is also dangerous for an investment firm to ignore an investor’s risk tolerance and his or her time horizon since every investor is unique. We know that sometimes we push ourselves to invest in things we cannot afford during an unstable market by stretching our capabilities to the level where we have sleepless nights and immediately we want to dump our investments.
Conclusion
To appropriately invest in the share market it is not sufficient to select the right stocks or understand thefunction of stock exchange. As a 5paisa investor, you may position yourself for a more satisfying investing experience by avoiding these five typical blunders: blind to research, caving to your emotions, trying to repeat previous successes, not paying attention to diversification, and not paying attention to your risk tolerance or investment time frame.
