There are some common mistakes that first-time investors need to be mindful of before they try their hand to pick stocks such as well-known investors like Warren Buffett or selected like George Soros.
Here are 6 dangerous moves for first-time investors.
1. Jumping in Head First
In theory, the fundamentals of investing are quite simple — buy low and sell high. But, in reality you need to learn what “low” and “high” really mean.
In any deal what is “high” for the seller is called “low” (enough) for the buyer and you can see how different assumptions can be made from the same facts. It is necessary to learn before diving in, because of the relative complexity of the market.
2. Playing Penny Stocks and Fads
Penny stocks at first sight seem like a great idea. You will get a lot more shares in a penny stock for as little as $100 than a blue-chip that could pay $50 a share.
Unfortunately, many penny stocks have to weigh against the uncertainty they face in place size and future profitability. Overall, remember to think in percentage terms of stocks and not entire amounts of dollars.
3. Going All in With One Investment
In opting to chuck diversification into the storm, investors have a lot of potential but that also brings a lot of harm. It’s especially good to buy at least a handful of stocks as a first-time investor.
The lessons learned along the way are less expensive but still useful. Exchange traded funds (ETFs) are a great way of getting widespread exposure.
4. Leveraging Up
Having a spread to sell your money ensures you’ll borrow money to purchase more stock than you might afford. The utilization of equity magnifies the gains as well as the losses on a given investment.
Learning how to control the amount of capital at risk comes with practice, and leverage is best taken in small doses (if at all) until an investor learns that control.
5. Investing Cash You Can’t Afford to Lose
Investing is a long-term business whether you are a buy-and – hold investor or a trader, and staying in business requires both emergencies and opportunities to have cash off the sidelines.
If you have just enough cash to spend or an emergency cash fund, otherwise you are not financially in a situation where it makes sense to spend. This type of investment leads to wrongdoing due to behavioral biases.
6. Chasing News
Investors deal with skilled companies who not only have intelligence the second it is available, but also know how to better interpret who knowledge and act upon it.
The perfect first purchase, rather than chasing speculation, is in firms that you appreciate and have a professional history working with. You wouldn’t keep placing bets on black at a casino to make long-term profits, so you shouldn’t do what the equivalent investment is.