5 Common Mistakes That Most Investors Make

By StockNod on April 8, 2009
A key factor responsible for people achieving mediocre results or losing money in the stock market is lack of proper knowledge . The fundamental and technical variables that are responsible for the fluctuations in the prices of the stocks serves as a basis for investing wisely.

THE RULES OF THE GAME:
1.Speculations do not translate into money
The most challenging problem for today’s investors is that there is lot of free information, personal opinions and advice about the stock market. Only a specialist in stocks, who is engaged in studying the market in detail or is a professional consultant will have the necessary knowledge to help you make money. Thus it is important to shield yourself from rumors, information from dubious or unknown sources , or be influenced by friends and associates, especially those who has little knowledge about the stock market. Restrict yourself to very few sources of relevant data, facts and time tested principles that has proven to be accurate and profitable over time. It is unbelievable how much erroneous information is out there about the stock market, how it works and how to succeed at it.

2. Follow established set of guidelines
The age old question for most investors in stocks is whether they should buy, sell or hold on to the stocks. This indecisiveness depicts a lack of proper knowledge and that they do not follow established guidelines. Follow a set of strict principles or buy and sell rules is imperative to help in the decision making process.

3. Make actual profits
It is important to withdraw a part of your profits at regular intervals. Most investors often forget the prime reason for investing in the stock market - it is to make actual profits and not just make profits on paper. For example, let’s assume you have bought stocks @ $1per share and now the price has gone up to $2 per share. Based on your market analysis, there is a good probability that the stock prices will move up. However there is no harm if selling a percentage of your stock and realizing the profits from them.

4. Good dividends should not be the primary reason for buying stocks
There are dubious companies, who often use the bait of good dividends to lure investors. You might find later period that the dividends have dried up and the stock prices have gone down so badly that you have lost your invested capital. As a rule of thumb the more a company pays in dividends, the weaker it may be. It may have to pay high interest rates to replenish the funds paid out in form of dividends. Always remember, the major reason for buying a share is to increase the amount of money invested.

5. Don’t buy stocks based on emotions
A major hindrance as to why most investors fail to make money in stocks is that their decision making process of buying stocks is guided by hope or personal opinions. Successful investors pay attention to the market and are guided by sound principles and time tested methods that yields results. It takes time and disciplined effort to make the right decision but in the end its worth every minute of your time and effort.