10 Reasons Why People Fail When They Start Investing Pt 2
Trusting the news
The news can be misleading most of the time, many investors call them “Noise” because it is all we hear and can interfere with our judgment. When people start investing they sell their stocks too soon or they abstain from investing because the news are saying that it is a bad time to invest or that the market is going down.
The fact is that there are always going to be bears in the market and that bad news will always catch the headlines. There are people out there who are excellent at making money when there is a downfall in the market. Would you agree they would preach fear into the public so that their pockets could grow?
Quick Solution: Turn down the Noise! Turn off your TV and electronic devices that could inform you about how the market is doing while doing your research. Worst thing that could happen is that in fact the market goes down, but only left you with the best stocks at the best price ready to rebound.
Buying too many speculative stocks
In our quest for riches we tend to let emotions get in the way of making profitable decision. We have all seen those stocks spiking up 1,000’s of percent a year. We can only imagine what will happen if we invest most of our money into them when we find them, we will become rich!
Investing on highly speculative stocks can be like gambling if the research is not done properly. Remember we talk about diversification? When setting up your portfolio for success speculative stocks should represent a small portion of it due to their instability. Don’t get me wrong speculative stocks are what keeps the game interesting and exciting, especially when they go up.
Penny stocks are out there to lure us into the illusion of making money quick, showing spectacular gains in the periods of days or weeks. Penny stocks run the risk of being highly influenced by big companies that make a profit out of all small investors investing in their “Pump and Dump” schemes. That is how Jordan Belfort (The Wolf of Wall Street) made his money.
Quick Solution: Limit your portfolio between 5-15 percent on these acquisitions, and remember to Diversify.
Not having a strategy
Successful Businesses and CEO’s are characterized by always performing successful strategies. It seems that success comes when you have well thought plan. When investing a strategy to get in or out of stock should be crucial for every decision. You should know when you are going to sell before you even buy a stock.
Where people fail when they start investing is because they don’t own a strategy. People seem to hold their stocks even after a huge gain is presented. Remember that the key to make money in the stock market is to “Buy when stocks are low and sell when they are high”
Owning a strategy can help you maximize your profits as much as it can help you minimize your loses. Another benefit of owning a strategy is that it will make you keep a cold head when it comes to investing. This can help to get our emotions out of the way when it comes to making decision.
Quick Solution: Figure out how much money you are willing to lose and how much money are you willing to gain (Keep it reasonable). There are excellent strategies you can come up with, like hedging, scale investing, dollar-cost averaging. You can learn a couple in our course Investing Strategies.
Not Selling their winners
What happens if you don’t have a strategy for selling?
Sometimes your stocks will gain 30% percent and you will be more than happy with it, but if a plan to sell is not set into place your gains could go lower every day, and then the struggle to get back those lost percentages will eventually erase those profits.
Another thing that could happen is that you decide to buy your stock but a scale investing strategy is not set up into place and the stock begins to dip drastically. Fear will be hard to overcome when you see your money drop sometimes this may even lead to selling too early.
Have you ever sold a stock because it was going down just to find out a week later it overpassed your initial price?
Quick Solution: Don’t fall in love with your stocks. Learn to sell your winners as much as your losers.
Failing to learn from their mistakes
The four most dangerous words in investing are: ‘this time it’s different.’ John Templeton
Most importantly accept that you have made bad decisions in the past and try to keep a valuable lesson out of them. Where people fail when they start investing is that many of us think the next time will be different and that the strategy set up into place failed because the market was against us.
Nobody is out there to blame but yourself, simply pick up where you left from and come back with a better solution. There is a reason why only the 1% in our nation controls 99% of our wealth, not every body is willing to give their 100% after the initial defeat.
Quick Solution: Be humble, accept your mistakes, and come back with a better solution
Read Also: 5 Investment Quotes from Sir John Templeton
When I first started investing I took a massive hit on my portfolio just to teach me the most valuable lesson of all. Enter your email below to get more of the full story.