Investing is a complicated affair. As easy as it may seem, if you dig deeper, the more vast and complex it is. You have to risk life savings into it and there is a certain chance that you will witness your wealth disappear in a short period of time. So, risk management is crucial in investing. Minimizing the mistakes you make is the pathway to maximizing the profits from investment. To avoid the mistakes, you need to have clear understanding about the commonly made mistakes by investors.
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Here are 11 mistakes made in investing as per William J. O’Neil. Avoiding these errors in judgment may lead to better investment results.
Common Mistakes In Investing
1. Stubbornly holding onto your losses when they are very small and reasonable. Most investors could get out cheaply, but because they are human, their emotions take over. You don’t want to take a loss, so you work and you hope, until your loss gets so large it costs dearly, without exceptions, you should cut all your losses immediately when a stock falls 7% or 8% below your purchase price.
2. Buying on the way down price, thus ensuring miserable results.
3. Not following your buy and sell rules, causing you to make an increased number of mistakes.
4. Concentrating your effort on what to buy and, once the buy decision is made, not understanding when or under what conditions the stock must be sold.
5. Failing to understand the importance of buying highly quality companies.
6. Buying more shares of low-priced stocks rather than fewer shares of higher-priced stocks.
7. Selecting second-rate stocks because of dividends or low P/E ratios – Keep in mind that you can lose the amount of dividend in one or two day’s fluctuation in the price of stocks. As P/E ratios, a low P/E is probably low because the company’s past record is inferior.
8. Cashing in small, easy-to-take profits while holding the losers – Exactly the opposite of what you should be doing : cutting your losses short and giving your profits more time.
9. Not transacting ‘at the market’ preferring instead to put price limits on buy and sell orders.
10. Not being able to make up your mind when a decisions needs to be made.
11. Not looking at stocks objectively.