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Stock market mistakes you should avoid as a newbie

Hailey Avatar By: Hailey | Last updated July 10, 2020

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What doesn’t kill you, makes you stronger, they say. Mistakes are a natural step in the learning process, they help you grow, become better and wiser. And while this also applies to investments, the fewer mistakes you make, the better, because when it comes to investing your money in the stock market, every mistake costs you money. So why not try to avoid them as much as possible, or at least don’t repeat them.

Here are the most common mistakes unexperienced investors make on the stock market:

  • They are guided by unverified rumors or tips when buying a specific stock. The word of mouth is all too common, we all follow it more than we have to in our lifetime, whether we’re being influenced by a relative, friend or even stranger. But when it comes to investing in the stock market, you need more than that before you put your money where their mouth is. Don’t rush into investing all your money in unfounded tips. Always do your homework, find out as much as you can about the company you’re planning to invest your money in, make sure you’re comfortable with it, that it’s trust-worthy and really looks like it has potential
  • They are investing in stocks just because they are cheap. A lot of people make this mistake and invest in fallen stocks, assuming that a fallen share price is a good deal. They get carried away by the 52-week high the stock had and compare it to the actual price. But that doesn’t necessarily mean that the company in discussion will earn more money, on the contrary. As a general tip, avoid these ‘too good to be true’ bargains, because more often than not, what seems too good to be true, it usually is too good to be true
  • They buy more of the same stock to average. A lot of investors choose to buy more shares of the same stock, when that stock drops, thinking that this way they will lower their average buying price. In some cases, this can be a good thing, if the company’s drop is temporary and you are positive it’s going to bounce back. But if the stock is just going to keep on crashing, what’s the point of investing more money into the same hopeless, deteriorating company? It’s a risk you should only take if you are experienced enough and certain that your investment will eventually pay off
  • They only guide themselves by numbers and algorithms. Networking is sometimes more important than algorithms. Although it’s not always easy to make relevant and useful contacts, try to learn how to interact live, with wealthy, smart, successful people and study their habits, ask for their advice and get involved in the right circles. You’ll be surprised how much you can learn when you’re part of the right entourage
  • They buy shares in businesses that are totally unfamiliar to them. Investing in a business you don’t even understand can rarely end up well. Don’t just buy shares because a certain stock may seem ‘hot’ or sounds extravagant. Try to familiarize yourself with that certain industry first, as that will give you a valuable advantage over other uninformed investors.