DO YOU WANT TO BE THE NEXT VICTIM?
I have invested in the market stock for years. I’ve both made and lost small fortunes, fortunately, I’ve made more than lost.
Knowledge is very important to thrive in the market stock, that’s why you should read this article.
Learn from my costly mistakes, so you can reap the benefits immediately.
But why to invest in the market stock?
Because it’s the main pillar of wealth creation on the planet.
And what is the market stock, anyway?
People overlook the fact that the market stock is a place where companies are traded, bought and sold several times per day by shares.
Basically, when you invest in the market stock, you are buying a company.
A company is selling products for a profit and over a period of time most companies grow and make more profit increasing the value of their shares, making you as an investor wealthier.
But the most common image portrait of the stock market is like a casino, where people gamble instead of investing.
If you are a first-time investor, I suggest using common sense in investing.
In other words, the CEO and employee of these companies work hard to make you richer.
What do you thing about this video?
It’s funny but there are solid financial pieces of advice.
I want you to succeed in investing, without going through the trial and errors I had. Seeing your investment account dropping in value it’s a horrible feeling.
Knowing that you’ve worked hard to save that money, and see them vanish like water down a toilet, it’s demoralizing.
So, before jump into the market stock, I want to share with you the 7 most common deadly sins of investing. Avoid these mistakes, and you are already well off to build your small investment empire.
7 COMMON REASONS INVESTORS LOSE MONEY IN THE MARKET STOCK
I know how it feels to lose your hard earn money. Watching your trading account going RED, it’s painful.
The worst yet is the feeling of “freezing.” Your mind is terrified, you can’t step forward either back. In other words, your fears are paralyzing you from taking ANY ACTIONS.
Financial education is the first step to take control of your emotions and avoid losing money in the market stock.
I’ve created this blog so you can learn from my mistakes and get the rewards of being successful in life.
1# Didn’t Invest in Personal Knowledge
This is the reason you are reading this article. Right, Pal?
You understand the importance to invest in financial knowledge.
It puzzles me how many people jump into the stock market without any basic understanding.
Just imagine buying a Ferrari for your son the next day he got his driving license.
What are the chances your son would NOT crash the car?
I think you got an idea.
So, why crash your hard earned saving in the market stock without any experience?
Get knowledgeable first.
2# Trading Instead of Investing
It is tempting to trade.
You might think that you can make fast and easy money, isn’t it? I buy at US$1 and sell minutes later at US$1.02 making a 2% profit. Easy in theory, difficult in practice.
What about if the stock moves to US$0.95?
Inexperienced investors never think about another side of the coin.
Lost of capital and sleep.
You need to learn how to manage risks:
- Create different scenarios for your investments; What if the market goes up, what if it goes down, what if… Generate scenarios.
- Identify possible risks before they occur; let’s say you want to invest in the oil industry, study the oil history focusing on risks.
Warren Buffet, the second-richest man on the planet is terrible at timing market events, so what makes you think you can?
Unfortunately, a very large study of day trader performance showed that more than 90% of day traders lose money in the long run. The study was published in 2010 of hundreds of thousands of day traders from 1992 to 2006: Click Here To read The Study.
Trading is a hard game, requiring 70+ hours per week and sophisticated software to operate, still producing underwhelming results.
My advice; don’t try to time the market moves in order to make a quick dollar, no matter how tempting it may be.
3# Buy At The Stock/Market Pick
How often you heard TV and newspaper calling for:
“It is never been the best time to invest, stock at an all-time high with a growth of 50% in the last three years”.
This is the classic breaking news, that makes noise and influence people do irrational things; jump into the market stock, actually jump into “any” stock pick and market stock.
Great news about the stock market is during bubbles, as opposite very bad news at the bottom. Inexperienced investor jumps in during the bubbles and sells during the bottoms resulting in massive losses.
Quote of the day:
“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful” – WARREN BUFFET
Stock tips are just ideas. In other words, stock tips aren’t worth shit. Only your due diligence and fundamental/rational analysis of a company will bring to your attention great stocks to pick.
Another danger is to invest in market picks. As the stock goes up, it comes down. And when the market as a whole comes down, even good companies share’s price will follow suit.
Market heights are developed by an influx of money into the market stock following positive sentiments by investors. It is demand/supply, the more stocks investors demand, the more the price goes up.
Here is the problem with picks, they go for a correction (investors pull out their money), and when you stay invested, you are going to lose money and the time to just recover the investment is between 3 months up to 5 years depending on circumstances. This is the best way to lose money.
It is hard to predict when the market has picked, but take advantage of the bottom market is much easier and profitable.
You will notice in my future articles, that I focus my investment strategy on the bottoms of the market.
I have got great result buying during the bottoms, holding and selling at a higher price. I have developed a strategy that allows me to profit constantly with low risk involved.
Of course, there is always a risk, but a good investor will always minimize risks.
4# Pumped Stocks
Certain stocks, tend to get overhyped and overbought, just because the media is singing its praises and the brokers flooding investor email box with positive analytic charts.
I don’t mean all the stocks that get attention from the media are a bad investment, some aren’t.
When you’re considering buying a heavily marketed stock, don’t be lazy, take one hour of your time to run a comparable analysis. This will save you from costly mistakes.
Few fundamentals to check out before buying:
- Products and selling proposition;
- A comparable study of industry peers’ price to earnings;
- Sales and cash flow ratios;
- Dividend discount;
- Debt to revenue;
- Understand how this company is going to maintain/increase profits.
Would you buy a house without checking the neighborhood prices? Same goes for stocks.
In my years of investing, I notice a handful of companies shifting from average performing company to superstars during economic super cycles or national new policy. Buying these companies stocks can be very profitable, but doesn’t happen often.
A simple example; when the government offers a tax rebate for buying new vehicles, this shift of policy benefit car makers in the short term. So, buy stock of your favorite car maker is a no-brainer.
The recent collapse of oil, it’s an economic supercycle event. Loser and winners will arise from the rebound of oil price.
I bought one of the biggest asphalt companies in South East Asia for three reasons:
- The company is benefiting from the collapse of the oil price;
- A leader in the sector;
- Going to benefit from government spending on mega infrastructure to revive the economy.
For years profits were stagnant, but because circumstances and economic factors have shifted, this company is going to get a bust of earnings. Earning = Profit = Share Price Increase.
5# Invest More Than You Could Lose
Investing can trigger a lot of emotions.
I’ve seen people do some crazy things in the stock market, and just because they couldn’t take the short losses on the wave of the stock.
I know a smart guy that invested all his saving on the stock market after carefully picked the companies. In fact, the companies were fundamentally strong, but unfortunately, some bad news sent the general market into a two weeks dive (this is common in the market stock, nothing to worry about).
He was stressed to the max.
He literally lost sleep over this investment because all his hard saving built in years were getting wiped out in days.
Once he hit his breaking point (ten days) and could no longer handle the stress from his perceived risk, and sold out his positions.
He booked a loss of 9%, but he could sleep again. However, he left on the table a 23% surge in the next year, just because he invested more than he could lose.
Investing more than you can afford to lose evokes all types of emotional decisions drive by fear. Fear is your worst enemy.
With this simple step and others, you can reduce your fears to a manageable level helping you to avoid catastrophic investment decisions.
6# Catching A Following Knife
This one is where I’m well experienced in losing money, but I’ve have learned my lesson in a hard way.
“Wow, this oil company lost 4/5 of its peak value, it is a bargain.”
Does it sound familiar?
I recently lost 20% buying into an oil company while the stock price was getting hammered thinking that eventually, it would turn around soon.
After 2 months I sold at a loss of 20%.
I have got into the investment too early.
I realized that and stopped my lost at 20%.
While writing this article, that stock has lost another 30% from the date I sold.
I haven’t lost interest in the oil stocks, I’m waiting for the bottom because it will be the right time to invest in the market stock for the long term, it might take more than 4 years to start to see a climb.
But keep in mind, when investing time is on your side, while waiting for a few years you better invest your money somewhere else…
In market stock, falling angels are better to be left alone till they reach the bottom and the price consolidates for at least 2 months.
Nowadays I’m more patient and let the markets settle even if it means I’m giving up some of the upsides by not “bottom fishing”.
At the moment it might be an excellent opportunity to buy oil and coal mining stocks by a price point of view. I mean, the stock’s price has never been cheaper in the last 10 years.
But the price isn’t everything.
What about the industry they are in and the company fundamentals?
Before buying into the oil industry, consider that 10 years ago there weren’t electric cars could drive for 300 miles without refuel and have the performance like a Ferrari.
This could be a breakthrough innovation going to change the car industry and indirectly be affecting the oil demand. Plus, the fracking revolution is flooding the world with cheap oil.
The goal is to buy good companies at a reasonable price. Buying companies solely because their market price has fallen will get you nowhere.
Make sure you don’t confuse this practice with value investing, which is buying high-quality companies that are undervalued by the market.
7# Lost Opportunity
Most investors are hesitant to buy stocks just because they have rallied 10%-20% sometimes even in a day.
I’ve made good money in the markets buying stocks when there was a fundamental improvement in the investment story even when the stock had already rallied significantly based on the positive story.
Lost opportunity; Practically, you will not lose money as you never bought the stock but you will miss out on future gains.
Over ten years ago Berkshire Hathaway’s share price went from $6,000 to $10,000 in a year. Many investors waited for the stock to go down to its lower initial position, unfortunately, they missed out on the subsequent rise to $70,000 per share over the following six years.
What’s behind the stock price rise?
It’s the company! Good company with solid earning can weather any market storm.
I’m not saying that stocks never undergo a correction. The point is stock prices reflect the company performance and usually the price readjust from overvalued or undervalued prices during earnings season.
When you find a great firm selling products in demand with good profit margins, there is no reason the stock won’t keep on going up.
In conclusion, every time I have lost money in the stock market is when I did one or more of the seven investing sins above.
Losses in the stock market are unavoidable. They happen. But they don’t have to be a common occurrence if you know what to watch out for.
And by starting learning from the common investing mistakes will put you in the right direction. Losses in the stock market are unavoidable. They happen.
But they don’t have to be a common occurrence if you know what to watch out for.
And by starting learning from these common investing mistakes will put you in the right direction.
If you feel unsecured and not able to avoid the mistake above, I recommend index investing for you.
Index investing is a way to diversify your investments and not worry about the ups and downs of the market because you put money into the stock regularly over a long period of time.