scorecardresearch4 common mistakes that new investors make in the stock market

4 common mistakes that new investors make in the stock market

Updated: 03 Mar 2023, 03:55 PM IST

The first step into the stock market causes the maximum pain. Mistakes are mostly committed in the initial phase wherein many investors bereft of any knowledge of finance fall prey to quick schemes of getting rich overnight.

New investors are prone to making more mistakes in the stock market.

New investors are prone to making more mistakes in the stock market.

So many people deem investing in the stock market an easy way to earn money. A few days in the game and many of them complain about how they lost their money by investing based on social media tips or during online trading for F&O. Not that all stock investors lose money; however, many rue on having joined the market too soon without knowing or learning anything about stock trading.

Thankfully, with so many mutual funds to choose from, many new-age investors are relying on these professionally managed services, thus, mitigating the chances of losses in the market. One may opt for equity mutual funds, debt fund instruments and bank deposits instead to ensure continued wealth creation at low risk.

Many personal financial analysts also advise their clients to start investing in equity-linked savings schemes (ELSS) so that they can avail of tax benefits while earning good returns from the market. Though many investors complain about the three-year mandated lock-in period, what helps them is the understanding that it is better to wait than lose money over unwarranted speculation.

How these investors later or the kinds of funds they choose to invest in depends on their learnings in finance, financial goals and risk appetite. Though many people park their money inadvertently in inappropriate funds, it is evident from fund results that they do not lose their money in the long run.

Senseless investing in stocks

The upheaval in financial planning is when people start investing in stocks. The initial phase is the most dangerous phase of investing wherein people succumb to fancy talks of the constant bull run and try to ape social media influencers while deciding their next stock. The investment portfolio is based on wild guesses, some of which either lack base or have no relation to a practical understanding of one’s finances.

Daily trading

There is another misconception that one must trade regularly to stay in the game, which is wrong and completely devoid of sense. Trading every day is not definitely the right way to earn money or remain invested in the market, irrespective of what many traders say or do. Some investors refrain from entering the market fearing that their inability to trade every day will mitigate their chances of earning money, a fact which is completely wrong and unfounded.

Investing all in one go

A large windfall in business or inheritance money prompts many to start investing immediately. This also increases their chances of losing money in the market. Many investors hit the internet on receiving their money. They think that they can learn all the fundamentals and imbibe all the technical knowledge just by reading information from the web.

The unjustified hurry to start trading without considering the pros and cons of investing has caused many to lose vast sums of money in the market within a few weeks. The market belongs to none, which is why investors must be careful before deciding when, where and how to invest their earnings.

Falling prey to scammers

How many times have we heard the news of operators pumping up stock prices to create a false demand in the market? Such traders are tracked and their licenses confiscated in due course.

If you go by the data of trading volume in the market, you will realize that traders and exchanges earn maximum money from F&O in the market. The industry relies on income from Derivatives that are deemed as the whole and final thing in this industry. Since the trading industry's business model is based on increasing volumes of derivatives, many traders are always trying to steer clients from simple stock ownership to their F&O to earn more profits.

Stock investing is not dangerous. It is the first step that makes or breaks you in the long run. Tread carefully when you are investing in stocks. Do not put money relying on what your friends and peers say. Take time to learn the nitty-gritty of the market before deciding when and where to put your money. If you do not find enough time and sources to learn from, rely on professional advice before jumping headlong into the stock market.

These are the common mistakes which early investors should avoid.
First Published: 03 Mar 2023, 03:55 PM IST