We share this article with you so that new investors can see the most common mistakes made in the stock market and compensate for their own mistakes. Let's move on to the most common mistakes in the stock market.
1. Don't invest in a sector that doesn't interest you
It is difficult to gain knowledge and achieve success in fields you are not interested in. The first warning of an investor like Warren Buffett, one of the most successful investors in the world: "Don't invest in sectors you don't understand". We should understand this warning as follows: Don't buy shares in companies that you have no idea what they do!
The best way to avoid this mistake is to turn to mutual funds. So, you can create a diversified exchange-traded fund portfolio. If you want to invest in individual stocks, make sure you know the company to which these shares belong and then invest.
2. Don't Get Stuck with One Company
When you hold shares in a company for a long period of time, and especially if that company has done well for a period of time, you can feel attached to it. You are more than just in love with it, you are in love with it. Never forget that you are in the stock market to make money and that is why you are buying shares in this company. Do not hesitate to sell if the reasons for buying these shares change.
3. Don't Show Impatience
Slow and steady is always the key to success. So why would you expect anything different when investing? Expecting anything other than what your portfolio is designed to do is a recipe for disaster. Therefore, keep your expectations realistic about the rate at which each stock you own will grow and the duration of that growth. Always keep your feet on the ground and be patient.
More impatient and aggressive traders may want to consider short-term investment strategies such as binary options trading. The contract duration of binary options trading is usually as short as minutes. This means that investors who are tired of conservative investments may allocate as little as 5% or 10% to binary options trading when diversifying their portfolios. But keep in mind that while trading binary options, it's crucial to partner with a trustworthy broker. Therefore, before choosing a broker, you should obviously research binary options brokers for Australia.
4. Avoid a Monotonous Approach
Risks arising from the internal dynamics of companies are referred to as unsystematic risks. For example, a company active in vegetable production is much more likely to be affected by drought than a company active in construction. In this case, the coefficient of unsystematic risk, the "alpha coefficient", is higher. Professional investors can focus on a certain sector and manage a concentrated portfolio in a certain area by understanding the alpha coefficients, i.e. the risks posed by the internal dynamics of companies, and following them closely. However, this uniform approach is very risky for you.
Therefore, always adhere to the principle of diversification. In other words, when building your portfolio, including shares in companies that are active in both umbrellas and sunglasses. That way, you won't lose money on both rainy and sunny days. To put this diversification into perspective, as a general rule, the proportion of stocks in the same sector should not exceed 10% of the total. Always diversify your portfolio with stocks from other main sectors.
5. Don't Be a Slave to Your Emotions
The number one obstacle to your earnings in the stock market is your emotions. One of the basic premises of the stock market is this: Fear and greed rule the stock market. Don't let your greed or fear get the better of you. Always try to see the big picture by looking a little higher with a cool head. Over a narrow period of time, the stock market can fluctuate up and down, but over a longer period of time, you can see that the stocks of large companies, in particular, usually gain an average of 10%. Stay calm and keep in mind that in the long run your portfolio will generate a return in line with this average. Your composure may even allow you to capitalize on the sentiment of other investors.