- Posted by: Brighter Mind
- Category: Equity Investment
The equity market is considered as one of the best investment vehicles which can generate inflation-adjusted returns very comfortably. But while dealing in the equity market, an investor makes various investing mistakes that adversely affect the portfolio returns.
What are some common investing mistakes?
- Investing without a proper plan or proper research.
- Not doing diversification while constructing the portfolio
- Chasing the latest trends and stocks in fashion.
- Investing decisions based on hearsays.
- Falling in love with a particular stock or company.
- Investing with unrealistic returns expectations.
- Treating investment like gambling and making quick in & outs.
- Lack of patience to see the investment hypothesis getting played out.
- Investing decisions driven by emotions and biases.
Let’s understand these investing mistakes in detail and know how you can avoid the same.
1. Investing without a plan:
Most investor invests their capital in the equity market without proper planning and research. Often they go by hearsays and investment tips. Recency bias and fear of missing out often clouds an investor’s judgment. They invest without understanding the business of a company and its business drivers.
A sound investment decision requires a proper understanding of growth and risks. Therefore, a proper plan is required while investing.
For Example, Some investor invests in the equity or share market for retirement benefits. Some of them invest in the education of their children and some of them want to invest to create wealth.
2. Falling in love with a particular stock or company:
Some investors want to invest in a particular stock or company due to their emotional connection or bias. They fall in love with the company or stock and ignore signals that are anti-thesis to their holdings.
E.g.: Sometimes we see that a company makes an extraordinary profit and investors extrapolate the profit and keep holding the company despite the deterioration in business conditions. They keep assigning reasoning for the fall in profit and are unable to see the underlying reasons. They fall in love with that company. This emotional bias often leads to poor investment returns.
3. Fear to lose money:
Investors do not like risk and fear losing capital. This fear of loss let them unable to see the opportunities that a company presents and enhances their investment returns.
4. Not doing diversification in the portfolio:
Novice investors ignore the benefits of diversification while constructing their portfolios. Running a concentrated portfolio leads to undue risk.
5. Chasing the trends:
Chasing the latest stocks in fads is a common mistake committed by an investor. Some investors chase the trend of the market daily while investing their savings. One should use due diligence before investing the money.
6. Lack of patience:
An Investor thinking of making quick bucks would lead to disastrous results. The lack of patience often becomes counter-productive when it comes to investments.
7. Investing with unrealistic expectations:
Some investors invest their money only for the reason of getting unrealistic profit and treat the stock market as a get-rich-quick scheme. They expect unexpectedly higher returns from the investments made.
8. Investing without research:
This is a common mistake when an investor invests his savings without proper research. So, it may create a problematic situation. One should not trust the public information blindly and should do proper research about the company or its stock while doing investments.
9. Treating Investing like gambling:
Often amateur investor treats investing like gambling and seeks adventurism while doing investment. They treat investment like gambling and make frequent in & outs from an investment. This leads to unwarranted loss of inferior portfolio returns.
These are common mistakes that an investor does while investing. Doing proper research, being patient, and having reasonable expectations can correct the mistake. Alternatively, amateur investors can seek expert advice from SEBI registered investment advisors like Brighter Mind while constructing the portfolio to minimize the common mistakes.