Here are the top 5 mistakes I see beginner investors make. |
| These mistakes are ultimately why 90% of new investors will lose money. |
1. They don’t understand the investment |
| If you don’t know how a company makes money, you won’t know how it can lose money. |
| This adds unnecessary risk to your investment plan. |
| This is a risk that can be avoided, but often isn’t, and why most investors are losing money. |
2. They sell at the wrong time |
| There are only 3 reasons to sell an investment: |
| – You found a better opportunity |
| – The fundamentals changed |
| – You met your goal |
| All of these reasons have everything to do with your investment strategy. |
| None of these reasons have anything to do with the stock price. |
| The lesson? If you invest based on your analysis of a company, never sell because of the stock price. |
3. They invest on emotion |
| Just because a stock price is falling doesn’t mean you should sell. Especially if nothing has changed about the company. |
| And just because a stock price is rising doesn’t mean you should buy. Especially if the business is still run by poor management and has poor financials. |
| Always remember, stocks are volatile in the short term, but the long-term trajectory is up.
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4. They want to break even |
| Breaking even is when you refuse to sell the stock until it returns to its original price. |
| When you do this, you lose money through: |
| – Bigger losses |
| – Opportunity cost |
| You can incur bigger losses if the stock never recovers. |
| And your opportunity cost increases the more your money is tied up with one investment. |
5. They invest what they can’t afford to lose |
| There are risks to investing. |
| You’re never guaranteed to profit and you might even lose money. |
| So when you invest the money you need within the next year, you could end up with less than you originally invested. |
| This is how your losses get locked in |
