6 Types of Rookie Mistakes on Your Investment Journey

This article is written in collaboration with Tiger Brokers, a one-stop trading platform that has helped us save a ton of management fees. We hope you enjoy reading this article that fully reflects our personal experiences on some investment lessons. Read on to the end of this article to find out more!

Without a doubt, anyone who has invested in the stock market in the last 2 years has seen tremendous gains. With the market growing at such speed, it is inevitable that many were tempted to just enter the market without truly understanding the investment terrains of how to manage their emotions, mindset and expectations.

From all our previous articles on investment, you may realise by now, that we at TKSL, are growth and value investors. That means we invest for the long-run (5 – 10 years at least); on companies/ stocks that we are confident have growth potential (based on lots of research) or perhaps undervalued.

If you are a beginner in investments (which we once all were), you would definitely relate to at least one of these 5 rookie mistakes. Indeed, it was challenging to take the first few steps in investing and these mistakes are pretty painful lessons to learn. No one becomes an overnight millionaire right? Read on to take a trip down memory lane or start off by avoiding these mistakes!

Article covers:

1. Timing the market vs Time in Market

2. Buying Low and Selling High

3. Panic at Every Price Drop

4. Selling When the Price Drop to Stop Losses

5. Buying on Speculation

6. Choosing the Right Broker

1. Timing the Market vs Time in Market

Ever tried waiting for a stock price to go down but it never did? The endless “if only hor…” that we keep telling ourselves once that ship has sailed. Tesla (TSLA) was one of my recent mistakes. I questioned if I should buy since the exclusion from S&P till when it doubled the price and then continuing to have doubts if it’s still worth buying the stock. The endless timing of market and “if only hor, I bought it earlier…“, has costed me much opportunity gains.

There is a stark difference between timing the market and the time spent in the market. We advocate the latter. Don’t time the market! If you understand the growth potential of the company in 5, 10 years time which translates into the definite increase in stock price 5, 10 years time then what is holding you back from just buying at the price today? Waiting for the price to go down may not make much of a difference because, in the short-term who knows where prices are headed and you might never get the price that you want.

This is why time in the market is so important. It doesn’t play with your emotions and doesn’t involve short term predictions and in-out trading. Stick to the course and let the effect of compounding play to your advantage which inadvertently brings us to our next point.

2. Buying Low Selling High (Short-Term gains versus Long-Term)

Have you tried timing the market to buy low and sell high within a month or so? Who doesn’t want to make as much money in the shortest amount of time right? But how often does our gut feeling get it right? It seems more of a gamble than a calculated risk. More often than not, you might have assumed you were playing it smart in buying the shares ‘low’ and selling it at a ‘higher’ price only to see the share price go even higher which then translates into regret.

If you have that much confidence in your research to buy the shares knowing of the growth potential then why not commit for the long-run and adopt to hold your shares? As with your investments, it takes time for companies to innovate and grow.

3. Panic at Every Price Drop

When I bought my first stock, I would monitor it every day to see if the price would rise or fall. When it falls, I would panic google “Why did S&P 500 fall yesterday?” and end up finding out about some conflict the US had, something the president said and implemented, or some kind of public speculation. After a while, I just had to tell myself “STOP! I’m in it for the long-run, why am I wasting my time checking it every day?”

There is so much news circulating every day. Often, there is nothing negative reported in the news but yet, share prices go down anyway just because some people lose confidence in the stock based on speculation. At the end of the day, markets are often irrational.

Sure, it’s good to keep up with your stock’s news, but there isn’t a need to panic over all these market noises because, at the end of the day, market prices are unpredictable. Having done your sufficient research on the stock/ company to support your decision in buying the stock, you don’t have to be swayed and panic at every price drop!

4. Selling When the Price Drop to Stop Losses

If you look at historical data, most drops in stock prices are temporary as compared to the long-term outlook. Why this volatility? Who knows, there are always different reasons – sometimes caused by the news, speculations, or day traders.

It is especially prevalent during recessions, and we see how stocks do bounce back over time. A good example is the S&P 500 or IWDA (LSE), these 2 indexes have gone through more than 2 recessions and have shown resilience in their comebacks, peaking at all-time highs.

It is hard to part with your hard-earned money and see its value drop when the stock prices drop but understand that this is only so for the short-term. If you end up selling your stock every time the stock prices drop, then you will only be losing out on much more that you can potentially gain in the future! Cope with these drops and wait it out for when the prices increase again in the long-term! Remember, only sell when circumstances change such that the company cannot grow and scale anymore.

5. Buying on Speculation/ Dream

When it comes to your money, are you willing to trust someone else’s words and here-say to take a gamble or do your own research on the stock that you’re buying?

There’s a difference between Gambling and taking a Calculated Risk. Gambling is playing on luck without understanding the fundamentals, potentials and outcomes of your investments. While a calculated risk is doing all the research needed to justify your decision in a stock based on the viable growth potential and scalability of the company.

Buying on speculation and a dream can amount to big losses. These companies especially OTC (over-the-counter) stocks have yet to prove themselves in results and are at the mercy of any speculative news.

Picture yourself buying a ‘future apple tree’ from a salesman (The CEO selling you the dream) that has not even been planted yet. You don’t see anything except a pot of soil and the seed in his hand, yet he tells you it will definitely become an apple tree one day! Would you believe him? There are so many variables to consider – water, sun, nutrient, and tender loving care. How would you know that the moment you buy this ‘future tree’, it would definitely become a fruit-bearing tree? Unless you have money to blow, by all means give them a try, otherwise stay clear of these stocks till research proves some promising results!

6. Choosing the Right Broker

I guess it is always common for every beginner investor to be lost and unsure about the first steps to take, what investments to buy and consequently, what brokerage to use!

When I first started investing, without any research, I just decided to set up a brokerage account at my local bank. It’s a start isn’t it? But little did I know about the fees involved and on top of that, the foolish me also thought that it was compulsory to have a broker tagged to you to buy any investments (brokers commission then comes into play here). But little did I know, with proper research you can do it all by yourself! All of these fees when added up, eats into your investment returns. Back then, when the space was less crowded, most brokerages were offering relatively similar fees.

Many of us want to start investing but have little budget to start off with and fees do matter with each transaction made. Since last year, I have been using Tiger Brokers as one of my main brokerages. With no account maintenance fees and low trading fees of 0.08%, Tiger Brokers can offer buyers (especially new investors with little capital) a piece of mind to start off with smaller progressive investment amount as compared to a lump sum amount.

Imagine this. If you have chosen a brokerage which charges a high fee whenever you perform a trade (buy/sell), every transaction made is going to eat into your investment returns! Imagine an additional $25 commission fee and additional trading fees for every buy and sell, and you multiply that by 10+ times in a month… phew…

With access to live news in your phone app on the go, financial news are just at your fingertips! Check out our previous article HERE on our trading experience after using it for 3 months!

The More you Learn, The More you Earn!

Everyone makes mistakes and by making mistakes we learn the hard, painful lessons that come along with it.

I think some takeaways for us and our readers is to,

1. do your research and ask yourself if the company has future growth potential and operational scalability. Some companies are able to reach market growth but their leaders can’t take the company far and might end up failing. Once you are confident in the company, buy-in and hold for the long-term and watch those numbers grow.

2. It is important to remember that time in the market is always better than timing the market. Long term growth of holding your stocks in the market will get you more profits compared to constantly trying to buy at the best price.

3. Lastly, only sell when circumstances change.

We hope these tips will help you become a better investor!

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