Buying when the market is soaring
One mistake most of us make when investing in stocks is that we buy stocks before we have understood and ensured it matches with our goals. We invest because our friends made money or because the media and ‘financial consultants’ talked about how well the market is doing. We really don’t put much due diligence into our buys. We just rush and buy shares that we’ve heard are doing well, buying them at very high prices just not to be left out, forgetting that, following the crowd blindly is never a wise decision.
We also conveniently forget that, if you buy when the market is at the top the only direction it will go in the short term is down. We then are fast to complain “I bought these shares that everyone said were good and almost immediately the price dropped, people lied to me”. No friend, you got yourself there. Had you taken time to actually understand the market, you would have known, you don’t buy when the market is at its peak. The basic rule of investing is; buy low sell high.
Panicking when times are tough
The share market is a volatile place and will always have bear cycles. During this times of market uncertainty, share prices take a hit. And although it is a common thing, most of us still panic. In addition, the media often fans the flames of investor uncertainty making the situation look worse than it is making us panic even more. As a result, most of us end up selling their stocks out of fear of a greater loss forgetting we are only guaranteeing a loss on our end. Once you sell your stock, you can’t make gains when it recovers. You will have incurred a permanent loss which most of us regret after the market starts picking up.
Therefore, before you sell your stocks for a loss, you need to look at the company’s true value, profits, and track record which will prove whether your panic is justified or not. If the company’s value remained stable in other like circumstances, and has no wanting internal issues such as mismanagement, chances are that it will weather the storm hence no need to panic.
It is also important to note that, a bear cycle provides a great opportunity to pick up quality stocks at relatively cheap prices. It is a time to buy, not sell!
Trading rather than investing
I believe this is the biggest reason of all. There is a huge difference between trading and investing. Trading is short-term: trying to time the market by picking stocks that we believe shall quickly increase in price and make profit out of them. Investing on the other hand is long-term: building wealth gradually through the buying and holding of stocks over a period of time.
It is in human nature that we want the shortest route hence we can’t help try to “time” the market. We will often believe we have enough information and skill to pick winning stocks in the short run. We convince ourselves by past analysis that the market will go our way. And sometimes we get lucky, I have been lucky a number of times however this is just luck. A majority of times we jump in and out; almost always at the wrong times incurring huge losses.
I know you don’t want to hear this, but you can’t pick winning stocks! Don’t feel bad. Neither can 80% of most professionals. I know they will show you a stock they picked and is doing well, but have they showed you the other four they tried to pick and the market went against them? Don’t fall for the marketing gimmicks. Research has repeatedly shown that 90% of the time you cannot beat the market. You need to focus on investing in quality stable stocks, they will weather the volatility storm and make you money in the long run. Investing in stocks is a long game not a get rich quick gimmick!
PS: None of the content in this blog is financial or investment advice. It’s for educational purposes only. Please do your own research and/or consult with a professional if you want advice customized to your specific situation.