In the previous article 15 ways to lose money in the stock market – part 1 we have covered several common mistakes investors tend to make and as a result lose significant amounts of money. In this article we shall continue to cover more common mistakes. 

9. Get attached to your stocks – Almost all investors have the tendency to mix their emotions in investment decisions; usually it means to “love” or “hate” a certain share. When the investor owns a stock that he “loved” and it falters, his feeling might prevent him from selling it (“this is my stock”,” it won’t fail me”), even if all the supporting information does justify the sell decision. This can seriously damage the investor’s performance.

10. Set unrealistic goals for your investment – Typically, in times of a bubble in the market, investors develop unrealistic expectations about the expected return of their portfolio. The latest tech bubble in Y2K investor thought they could not lose. Do recall that technology stocks could have doubled in a matter of months and everything seemed green… The hangover that investors over the globe woke up to was quite severe…. Therefore, a realistic set of expectations should be set against the long term values of the leading indices (e.g. S&P500 etc). Graham stated that an investor should expect an annual return of 6% – 8% in the stock market.

11. Not considering the risk associated with investments – Any investment there is also a component of yield and an element of risk. When investing in shares the investor is exposed to risks arising from the companies in which he invests. More conservative channels (e.g. bonds) also have investment risks, including the interest rate and inflation risks. The conclusion is that it is impossible to avoid risk in the stock market, but you can learn to set and manage it. To learn more about risks and what is a safe investment you can visit our site www.safe-investment.info

12. Don’t keep track after your portfolio – Investing for a long-term does not mean you should completely forget about their portfolio. Investors need to keep track of changes in the stock market and maintain it (not necessarily on a daily basis) in order to adhere to their strategy in and manage the of risk. It is also advisable to pay attention to the appearance of abnormal problems with the assets (e.g. a certain stock has fallen too sharply, a mutual fund does not perform as well as its peers). Rebalancing of the portfolio should be done once every couple of months to make sure that the portfolio diversification and risk levels are in accordance with the investor’s goals.

13. Think of the stock market as a casino – investing in stocks is not gambling and should not be treated in the same manner. The basics of investment are to participate to a certain degree in a risk to help finance public companies that you believe have the potential for a long-term growth. You need to analyze the overall condition of the Company (via its financial reports) and disregard daily fluctuations. Relying on a momentum of a stock as sole cretrion to invest will usually lead to losses (though technical analysis is a helpful tool to support buy/sell decisions).

14. Investing in not well understood domains – The average investor should avoid investing in areas which are distant from his understanding. Investment in such areas (e.g. nano-tech) will cause the inexperienced investor some unpleasant surprises, especially if the  investor is not aware of the risk in this domain. Also, history has shown that investing in solid companies that seem boring (e.g. coca-cola) yields high returns more than investing the latest trend stocks (do recall Buffet’s strategy in investing only in domains that he understands and on the other hand what happened to all the hi-tech “dream companies” in the 2001 crisis.

15. Have no patience - Stock market investment is usually an investment for the long-term. Impatience stems from the short-term yields dissatisfaction and can lead to unnecessary errors. Thus, you should always think for the long term (more than 5 years) and be patient for the short term.
To conclude – refraining from doing the most basic mistakes as described above, you can significantly increase your results and yields from your investments.

You can learn more about the world of safe investments here.

Good luck!