Three of the biggest mistakes stock market investors make

Making mistakes is part of investment.. Even the best investors in the world, like Warren Buffett, sometimes make mistakes.

However, there are some classic mistakes that investors make over and over again. Avoiding these mistakes could make you more successful as a stock market investor.

I’m about to get rich soon

Trying to get rich quickly is probably the most common mistake made by stock market investors. Instead of building a balanced portfolio of high quality equities and aiming for an annual return of 10% ( Very wealthy In the long run), many investors try to quickly double or triple their money by investing in high-risk speculative stocks.

See this list of the most purchased stocks in Hargreave Slan’s Down.. Many of these strains 88 energy, Argo blockchain, Gamestop, Deliveroo (And even more Rolls Royce And IAG To some extent) is very speculative in nature.But I’m a top investor Buffett Or Terry Smith buys these shares.

Source: Hargreaves Slan’s Down.Data: April 16, 2021

Of course, speculative stocks can make me money. However, the risk is high. Investors often suffer losses from these types of stocks (and when they are there!), Which causes investors to retreat significantly.

It’s worth remembering that if I lose 50% on a stock, I have to make a 100% return at the break-even point alone.

Not properly diversified

The second mistake many investors make is that their portfolios are not properly diversified. Many investors own only a handful of stocks, and often one or two of these stocks make up a significant proportion of the portfolio.Recently I’ve been looking at a beginner’s portfolio Tesla It is more than 50% of the total.

Lack of diversification can have a serious impact on investors. If Tesla is 50% of my portfolio and the value of a stock drops by 50%, I’m seeing a 25% loss across the portfolio, assuming the value of the other stocks doesn’t change. This means that the entire portfolio must be profitable at 33.3% to reach the break-even point.

Most professional money managers tend to own at least 30 shares. It also tends to keep individual stock equalization below 5% of the total portfolio. This limits the risks inherent in the stock. If the performance of one or two stocks in the portfolio deteriorates, the overall performance is not so bad.

Not thinking in the long run

Finally, another mistake investors make is not thinking in the long run. Investors often buy stocks, panic, and sell when they fall 20% in the short term.

Volatility is part of an investment in the equity market. In the short term, it is normal for stocks (especially growth stocks) to fluctuate by more than 20%. The important thing is to stay calm and focus on the development of the underlying business.

Here is a great example. In 2018, I bought the stock at Clipper Logistics..My timing is Absolutely terrible – After buying the stock, it went down from 470p to 150p in the next two years. But the business was always growing, so I kept it. This patience was rewarded. Clipper’s share price has grown tremendously over the past 12 months, and today it has risen by more than 40%. This is a solid return in 3 years.

Investing in the stock market is a long-term game. Investing in top companies and holding them for long periods of time can reward investors.

Edward Sheldon owns shares in Hargreaves Slan’s Down and Clipper Logistics. Motley Fool UK owns a stake in Tesla and recommends Tesla. The Motley Fool UK recommends Clipper Logistics and Hargreaves Lansdown. The views expressed about the companies mentioned in this article are those of the author and may differ from the official recommendations made by subscription services such as Share Advisor, Hidden Winners, and Pro. Here at The Motley Fool, by examining different insights, Better investors than us.

Three of the biggest mistakes stock market investors make

Source link Three of the biggest mistakes stock market investors make

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