You should believe me when I say the stock market is risky.
Take it from the person who has lost thousands of dollars in the stock market. I can say – I have been there; I have done that. I was a rookie investor with limited knowledge, and I blew up my trading account.
The investment in the stock market is risky in a way that the returns are never guaranteed. You could potentially lose all the money. The return on investment could be far less than what has been invested. Therefore, everyone should take caution while investing in the stock market.
You might have heard these things:
You’re losing money if you’re saving money in a checking/savings account. You can barely cover the loss due to inflation by putting your money in a money market or higher-yielding savings account. The purchasing power of currency decreases with time. And then, there are taxes. If you are not doing anything with your money, you are losing its value.
I had heard all the reasons why investment is a better idea than doing nothing with the money. And I was ready to get started.
Well, at least, I thought so.
Until I lost a couple of bucks. And then, hundreds of dollars and then, thousands.
Beginner’s stock market investing mistakes
There are 5 main reasons why I failed on my investment journey in the early phase. I was a rookie investor and was utterly blind-sighted. I knew why I must invest. I was losing money in the bank. I want you to avoid beginner’s stock trading mistakes.
Above all, I wanted it to grow!
It all didn’t go as planned. And I learned some valuable lessons. You can learn from my mistakes and make better decisions in your investment journey.
1. Starting with not enough research
This is always the first thing you start with whenever you are learning something new. The stock market investment was entirely new for me. Therefore, I started researching stocks, dividends, options, mutual funds, and index funds. I learned how to buy and sell stocks and options. I researched the trading platforms, their fees, and commissions.
I thought I had done my homework, but it was not enough. When you are risking your hard-earned money, just getting familiar with the basics is not enough.
Stock trading is more than buying and selling shares of stocks. Even though the basic trading concept of buying low and selling high is always the same, knowledge about investment tips and tricks is essential. That’s why not doing enough research costs me thousands of dollars.
2. Going all-in was a lousy investment strategy.
As a beginner, I had a set amount of money I wanted to invest. I started with $5,000, and then I went all in. I had a list of stocks I wanted to buy. I loaded my investment account and spent all my money to buy the stocks I wanted to own.
The next, I held onto these stocks and waited! I watched the market every now and then and waited for the stocks to go up.
I waited and waited and then waited. I already used up all my cash, and there is not much I could do. It felt like I was stuck. Luckily, I didn’t put all the eggs in the same basket. Some of the stocks went up. And as you’d imagine, some went down.
I want to elaborate on why going all-in is a lousy investment strategy for beginners. When you’re just starting out, you’d like to see a quick return on your investment. This happens if the stock you invested goes up quickly. You’ll be disappointed if your investment goes wrong.
A beginner tends to pull their money out when there is a decline in the market. Investing all the money in your account will result in a more significant loss. I don’t know about you, but I’d instead take small gains than substantial losses.
3. Getting attached to the stocks (emotional investing)
Getting married to a favorite stock is every beginner trader’s mistake. I must admit, I was no different.
I had my favorite picks, and it didn’t take me a second to buy shares of the stocks. I knew the industry, and I liked the business. I had every reason to believe why they would go up. I didn’t think about any other stocks.
My favorite picks were the only ones that I was going to invest in. Even when they went down, I had hopes that they’d get back. I was being too much optimistic than realistic. I was literally married to the stocks.
The emotional attachment to my investing cost me dearly. I failed to take investing as pure investing. I didn’t know how to trade without emotions because I didn’t have the experience.
You should be willing to buy when it’s an excellent time to hold and willing to let go once you realize it’s not a profitable investment. Rather than getting out of the losing trades, I kept on wondering why the stocks didn’t go up.
4. Start trading Option as an early investor
Option trading is complicated, well, at least for the beginner. There are so many terminologies that one must get familiar with before jumping into trading stock options. This was one of my biggest mistakes.
Related post: The best option trading strategies for consistent income
I took option trading as a way of investing big-name blue-chip stocks without paying full price. I was trading call options on $AMZ, $GOOG, $FB and $TSLA stocks. I knew I didn’t have to pay the full price, but I didn’t know I was trading on the losing side.
5. Not knowing my risk tolerance
As a novice investor, I didn’t know my risk in an open position. I also didn’t know how much risk I could handle. The only thing I knew was, I had $5,000 to invest. I never thought about what if I lost all my money.
I understand that nobody thinks about losing money while investing. The whole reason for investing is to make money grow. Everybody is thinking about capital gains and dividend incomes. We are trying to build a better future where we’ll have abundance.
Then why think about the risk that I can lose it all?
We must think about the risk and our tolerance towards it because investing is full of risk. We also need to learn about risk and risk tolerance to implement risk management. Everybody needs to know risk tolerance to protect the stock market’s downfall.
6. Not having a proper trading plan
Planning is essential for everything. This also applies to investing. A proper plan for investment outlines how you’re investing, the purpose, and your exit plan.
I had no knowledge about any of this while I started investing in the stock market. I didn’t have a plan on what I’d be investing in. I didn’t know how long I would be funding it. I didn’t have any exit plan. I didn’t even know if I needed one.
An investment opportunity must be well analyzed before putting money into it. You need to determine if the investment will be profitable. Does the business model make sense? Do you see the growth potential? You need to ask all these questions.
Investing is not a one-time thing. It’s not like you invested in a stock or funds once, and then you’re not done. Investing is usually a long-term process.
Buy and hold is not always a great strategy. Consistency is the key to investing and growth. To build wealth, you must invest consistently, either weekly or monthly. You must put the dollar cost average to its full potential when the stocks are down.
My losing stock market experience in early stages has helped me understand investing better. The key take-away is nobody should rush to investing. Even though they say, the best time to invest was yesterday and you should start investing right away. I suggest you take time and gather all the information before jumping to it.
Learn how stock trading works and understand the basics. Start small and slowly increase your account size as you’re more comfortable. Congratulations on deciding to go on the investment journey. Everyone should start investing. Please comment below to let us know you biggest mistakes in stock market investing.