Investing In The Equity Market? Be Wary Of These Five Investing Mistakes

Wednesday, 14 July 2021, 5:31 pm
Press Release: Kalkine

Summary

• Novice investors must be cautious of making silly mistakes in the equity market that can cost them a fortune.

• Investors should equip themselves with comprehensive knowledge about the equity market before taking exposure to the same.

• Maintaining a balanced risk profile is the key to wade through uncertain market events.

With a vast expanse of information available over the internet, it has become considerably easy for individuals to enter the investing playfield. A great testament to this has been the rapid surge of novice investors even during market uncertainty amidst the pandemic. Meanwhile, the high influx of information has enabled newbie investors to find creative ways to profit from the market.

However, one cannot neglect that even the most seasoned investors are not immune to the far-reaching risks associated with investing. Putting one’s money in a poor investment is almost every investor’s nightmare. But with sound knowledge and a cautious approach, one can mitigate certain risks and contain the level of volatility they subject themselves to.

Must Read: Three common investing mistakes to avoid as a beginner

To avoid getting caught up in the intricate threads of the equity world, here are five investing mistakes each investor must be wary of:

Not doing your homework

Before going on a trip to an unexplored place, a basic rule is to fetch details about the destination and the tourist hotspots. The same provision applies to the stock market, with the only difference being in the consequences of both. A poorly planned journey can ruin your holiday time only, but an ill-planned investment can pour your money down the drain.

Many individuals often lose their earnings gathered over a lifetime by investing recklessly in the stock market. Thus, investors should equip themselves with comprehensive knowledge about the equity market, including the risks involved and return potential, before taking exposure to the same.

A good starting point is to be well-informed about the stocks that investors are planning to invest in. To evade potential losses, investors can run some quick checks before investing in the stock on the indebtedness of the company, quality of the profit and the basis of the company’s business model. It is equally essential to be cautious of firms that have seen promoter stakes falling consistently.

Letting emotions get the best of you

Sometimes, investors mistake a stroke of good luck as their sound judgement. If a stock continues to deliver returns in line with investor expectations, there is a high likelihood of investors developing an irrational bias towards the stock over emotional reasons. This may eventually lead to considerable losses in the absence of proper fundamental and technical research.

Additionally, investors sometimes also pay too much heed to trends and patterns observed across the market, falling prey to herd behaviour. This can create a panic-like scenario even when there is just the slightest hint of an upcoming crash.

To avoid this mistake, investors should not attach any emotional value to stocks or base their judgement on the viewpoints of others. As an alternative, they should undertake their own research and perform appropriate market analysis instead of relying on current trends and following the herd mentality.

Putting all your eggs in one basket

When investors pool large sums of money into a single, high-risk investment, they are at greater risk of encountering massive losses if that investment performs poorly. Thus, investors should refrain from putting all their eggs in a single basket and instead diversify. With diversification, investors can turn to another option for returns if one option does not go their way.

Novice investors often overlook the vast array of advantages offered by diversification, which allows them to customise their investment basket based on their risk appetites. Moreover, there is considerable historical evidence that suggests diversified portfolios bring in more significant revenues than others.

With that said, investors can ponder on investing in different types of assets along with stocks to reduce their risk level, including bonds, ETFs, gold, and cash. The aim should be to maintain a balanced risk profile to wade through uncertain market events and limit losses.

Being in a hurry to reach the finish line

It has been rightly said, “Patience is a virtue”, and stock market experts can attest for the same. In any scenario, decisions taken in a hurry are usually not the best decisions taken by an individual. Even in the stock market, the lack of a slow and steady approach generally creates a worrisome situation for investors.

Investors often resort to selling their securities when they sense fear in the market. Moreover, investors end up making irrational decisions when they begin comparing their losses to others’ gains in the equity market.

Thus, it is imperative for investors to understand that making cool-headed and well-informed decisions is key to attaining higher profits in the stock market. Maintaining realistic expectations, assessing the performance of their assets, and simply waiting out the bad phases can be lifesavers in case of turmoil for investors.

Being oblivious to taxes

Investors, who are not aware of the tax consequences of stock market trading, usually do not realise that taxes are eating away their equity returns. Whenever an individual trades on the stock market, the person is required to pay some taxes on his total earnings from the share market, which can eventually reduce his returns.

Thus, investors need to be well aware of the government’s taxation policy associated with trading to avoid a colossal surprise bill when they file tax returns. While trading in stocks is vulnerable to some taxes, investors can save a pile of money by making purchases through a tax-deferred account.

Remember, investing in the equity market can be immensely profitable if you are vigilant towards these investing mistakes. While avoiding such mistakes, one can ride through periods of market volatility with ease and comfort.

Also Read: 3 Investing tips to beat the market in 2021

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