7 Common Investing Mistakes You Must Avoid (Part 3 of 3)

6. Failure to realise that the market is forward looking

Many people do not realize that the stock market is not the economy. In fact, the stock market is forward looking and always leads the economy.

Why is this so?

According to Investopedia, “the stock market refers to the collection of markets and exchanges where regular activities of buying, selling, and issuance of shares of publicly-held companies take place.”

Now ask yourself, who are the ones involved in the buying and selling of shares? It’s the investors. As shared in the earlier points, retail investors are driven by emotions and sentiments. These sentiments include what the investors think about the future of the companies traded on the exchange. So if the investors are optimistic about the future performance of a company, they will think that the stock will be worth more in the future and hence, are willing to pay more now to buy the shares, driving the prices up. Therefore the stock market always moves faster than the economy.

Let us look at the stock market prices during this COVID-19 pandemic.

In March 2020, the stock market fell to the bottom. At that time, the economy was still not at its lowest point. When the economy dipped to its lowest, the stock market was already on its way to recovery, with some stocks already recovering to their pre-covid levels.

But many investors do not recognise this fact. They do not understand that economic data is old news to the stock market! They tend to follow the reported news about the economy and the recession. As a result, when the market dipped to its lowest in March 2020, they did not ride on the opportunity to buy more positions of the good stocks. Such a mistake cost them to miss out on the huge rally that came after.

As an investor, we should always remember that the market is forward looking in order not to miss out on big opportunities! If we wait until all the rosy news is out, we will be late to the party already.

7. Abandoning or forgetting about your portfolio

Many new investors are so hyped up and excited about buying their first stock. They take it to their social media profiles or flaunt to their friends that they are on their way to big money. They do things to celebrate their first buy but they forget about their portfolio after a few months. They forget to review their portfolio regularly and they have no idea how much paper gains or losses they are making. I must caution you that this should not be the way unless your portfolio is made up of just ETFs that have a long term history of performing well in the long run. Otherwise, you may miss out on potential selling opportunities or risk growing your paper losses.

Companies may not always be doing as well as they used to be and the fundamentals of a company may deteriorate overtime. When it comes to stocks investing, it should never be a set and forget approach. If the investment thesis for a certain stock no longer holds, you may want to consider offloading it to better deploy your funds elsewhere. Many investors lose huge amounts of money, not just because they bought the wrong stock, but because they bought the wrong ones and held on for a long period of time.

On the other hand no matter how good a stock is, there will always be periods when its price is in consolidation or when hit with temporary bad news, re-traces significantly. There is nothing wrong as an investor, to sometimes trim your profits and take them off the table, especially when the price has over extended or is severely overbought. This is especially profitable if you are someone who knows about technical analysis.

As you can see, whether or not the stocks perform very well or badly, reviewing your portfolio from time to time will ensure good housekeeping and allow it to grow healthily.

Conclusion

Making a mistake is normal and common, however, if you stick to the above advices and beware of these rookie mistakes, you would be able to perform better than many of the new investors. Investing will never come without risks, hence being wary and alert will prove itself useful to you when achieving your financial goals.

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