Without a doubt, investing in stocks is an exciting and profitable way to generate wealth. But because this is not a get-rich-quick-scheme, investors who dive into it must have the patience to study the basics and advanced of stock investing.
If you’re a beginner, we list below the things you should avoid when investing in stocks.
Buying on Rumors, Tips, and Recommendations
People with a loose grasp on the fundamentals of stock trading are the ones who believe in rumors, and even tips from stockbrokers. Having the fundamental skills enables you to review past disclosures of a company and compares it with rumors. Even recommendations must be tested to see if they’re really worth following.
Players without fundamental knowledge about stock investing would not last in this highly-competitive field.
Buying to Make Small Quick Profits
When the market is highly volatile, buying and selling stocks can be very tempting. The advantage of this is that you’re not required to pay your broker on settlement date because the same buying position is sold on the same day. Instead, your broker will pay you because of the profit you made.
But the downside of this method is it’s highly risky. It’s so high it can be likened to gambling in a casino. Aiming for short-term gains can certainly work against you. With this manner of trading, the more you trade, the more transaction costs you are going to shoulder.
No Knowledge of the Company Behind the Stock When Buying
Without fundamental knowledge at hand, it would be easy for first-time investors to throw away their money everywhere.
A lot of first-time traders are blindly, or should we say, foolishly handing out their money on companies they don’t know about. Buying a stock means you are handing out the fate of your money to that company.
It’s only logical to check the company behind the stock you are planning to buy. A thorough background check can reveal if they are good or bad performers. One of the most important things you need to check is the company’s business model. Also, you should find out how they make money and their capacity to sustain earnings and cash flows. Moreover, familiarize yourself with their products and the people behind the company.
Digging on these facts will be worth your time as it can save you from costly financial mistakes that you might encounter in the future.
Also read: College Students Can Trade Stocks Too!