Investment Mistakes

Investment Mistakes 2020

Learning never ends, it keeps on going at every point of life, learning about your life, about your profession, about all of your doing. On the point where we think that our learning has been completed is the first biggest blunder we commit. Learning is the continuous process that runs along with you and learning is always productive and knowledgable if you treat yourself as a learner rather than an expert.

Nobody can be the expert of anything even after the study and experience of 100 years, always there is the scope left for new and advanced learning. In all the professions things keep on changing, technology, software, customers, their requirements, products, and services. These all requirements can only be fulfilled by remaining fresh and updated which generates the requirement of the regular learning process. The same goes for investment also, the more you read the more you learn, and the more you learn the more you earn.

In my opinion, the mistake is a part of learning because until you will no go wrong, you cannot be the creator of curiosity and learning can only be successful when your curiosity is at its peak. The most important part of learning is to learn from others' mistakes rather do all the mistakes on your own and make this learning unaffordable. There are only 10% of individuals who find one another opportunity to correct themselves. This is why we read books, blogs, and journals so that we can learn from other's blunders and do not repeat the same.

There are some common mistakes which every investor makes and repeat during the course of action: 

Wrong buying decision made and then continue with that decision

Some of how we all do these mistakes that due to media or wrong advice of friends, colleagues, relatives we take wrong buying decision and after some time we realized, but we hesitate to make the exit from that stock as it is less than its purchase price and somehow we get emotionally connected to our equities and this makes difficult for us to exit. Whenever we are not convinced by any company or its operations are not understandable or seem attractive then do not try to invest in the same or if you have invested then make the exit as soon as you realized.

Investing during high valuations or stretched valuation

I have seen many of the people they interested in buying when the company is full too in news and everybody is talking and celebrating its success. This is the first and foremost rule of investing that buy when everybody is in panic and sell when everybody is doing cheers. Some of us may think that how we should know that the product is overvalued or valuation is stretched. You can the detailed knowledge about it from the Price to earnings ratio and one more thing you can check for stretched valuation that is checked the market capitalization of that stock with respect to entire market size. If the company market capitalization is very high rather than its industry then something is wrong and the price of the stock can go down very soon. You can get the information about industry market capitalization easily on the internet. Too much name and fame is also the sign of stretched valuation, Stay away from the stock which is available by everyone unless sooner or later you would be in trouble.

Management changes

Management plays a very important role in every company, A good management can make the company for a decade and bad management can destroy it forever. You can check that if management changes in any company then the stock goes down this is because the management change is itself a risk associated with the companies growth. If whenever you find that the company management is changing then the reason for changing is also very crucial and then if the reason is genuine like retirement then we need to wait for 1 or 2 quarters to check if the companies performance and then made the further investment decision accordingly. Many people make a mistake here like as soon as management changes and they find the stock at the good value they enter into the same and then this management not able to perform as per the previous one and your investment decision becomes a mistake.

For instant under the management of N.R. Narayana Murthy, the company achieved a lot but soon after the management changed the company becomes sideways and TCS overlaps infy growth and becomes the most valued IT company in India.

Sell according to your buying strategy 

Define the strategy for buying any particular company/stock, Investment strategy is very important and before buying any company you should know that how much you would be going to hold that company.

suppose you decided to earn 30% on a particular company and your pre-decided returns you get in a month then you should immediately make your exit from it until there is not any big change happened in the company. One recent example we can take of this, last year I bought reliance Industries with the hope of a 20 % rise and my strategy was to exit near 1650/share but recently due to heavy investments and rites issue in it the stock price come to 1850 and now I am still holding it with the hope of 2000. The important thing here to notice is, I have invested when the company was holding heavy debts on it and now when the company becomes debt-free then it would be the wrong decision to come out of it.

Prevent yourself from re-entry

• This is a very common practice we all follow in our day to day life of investing as well as trading. We make an entry and then we make an exit, the reason could be anything loss or profit or at par but as soon as we come out of the stock we notice a spike in the stock due to any news or market-driven forces and we again enter on higher prices in panic and as soon as we buy again the stock price slash. You never know what is happening at back ends and why the stock is going up and when it can go down. 
• Once you book your profit then sit with it. 
• If you booked loss then invest that money into a good opportunity to cover your losses
• If you exit at par then also search for the stocks which can do value appreciation of your investment. 

Investing in the previous bull market stocks

This is also a very common mistake most of the investors do, which is making the investment in previous bull market stocks with the hope that they will again regain its glory. Every company and industry have its business cycle and it's not necessary that in one bull market if it is performing well then it will again perform the same. Investment should be made in fundamentally strong stocks when they are doing good in spite of when they are continuously falling after the market crash.

Holding losers in spite of winners

There is always the fear of losing money rather than thinking out of the box. Maximum people hold the stocks in which they are loosing and sold the winning stocks from their portfolio. Most of the retailers do this mistake and which leads to turning their profit-making portfolio into loss-making as they keep on gathering the loss-making entries and keep on selling the profit-making companies. The company which is today able to generate 50 % profit maybe tomorrow's multi-bagger but the company which is at a loss of 20% may be tomorrow's 0. This needs to clarify with fundamental analysis and Financial Statement analysis-I as well as Financial Statement analysis-II.

If you will learn and follow all these things then it will help you for sure. Never afraid of making mistakes but try to never repeat it and learn as much as you can from others' mistakes.

Also, read https://bijimoney.blogspot.com/2020/06/Investing-Little-Money.html