Common Mistakes While Investing

Summary

Being a novice investor in a different asset class necessitates caution in order to prevent unneeded losses. While it may not always be possible to avoid losses, it is always preferable to be aware of the errors people make so that you can avoid making such mistakes that cost you your money. Even worse, it may result in lost opportunities and severe losses if shares are devalued. We have highlighted a few crucial errors that people make while investing in unlisted shares.

10 Mistakes That Investors Make and Should Be Avoided

The following are 10 mistakes that investors and common people make that should be avoided at all costs.

1. Following the Crowd

   People in the unlisted market often speak among themselves and recommend stocks that they as investors think are good. Never invest in such stocks until you think its good to invest in. Most people don't learn about investments until they've been successful. There is a high probability that the shares of the company that were recommended are already overvalued by the time you think of investing in them. Media outlets like the news and social media can drive stock prices up to unduly inflated levels.

2. Poor fundamental research

   Investing in a terrible stock without conducting sufficient research is the biggest mistake an investor can make. You run the danger of losing every penny of investment if you invest in a business without knowing about its profitability or credibility of the promoters because they are equities that aren't particularly liquid. After buying the shares, selling the shares of that particular firm would be challenging when their business is doing bad as nobody would want to invest in such a share.

3. Lack Of Patience

   Lack of patience is another error investors make that should be avoided. The goal of many investors is to become wealthy rapidly. It takes time to trade in unlisted company Shares. You may not immediately enjoy the intended gains of those shares if you're investing long-term. If an investor invests in a company when it was a start-up or an unlisted corporation to when it is a public company, their capital gains are at their highest. Depending on when the investor bought the shares, this could take a few years or possibly 15 - 20 years or more. When the unlisted company expands, an investor will undoubtedly make great money, but expecting large returns immediately would only lead to disappointment. Investors purchase stock shares all too frequently and then want the shares to work in their best interests right away.

4. No Defined Investment Goals

   Lack of a solid investment goal is one of the most prevalent errors made while investing in unlisted share markets. To accomplish your investment goals, you must clearly state them and use the appropriate instruments. Any objective is acceptable, including accumulating funds for various reasons such as your child's education, owning your own villa, setting up a retirement fund and more but making a proper plan should be your first priority.

5. Putting All of Your Eggs in One Basket

   Another common error that investors do is to allocate a sizable portion of their funds to the purchase shares of a single firm, only to suffer a loss when the portfolio's value declines. When you place all of your money into one company or investment, a single bad development could ruin your entire portfolio. Diversification helps in distributing your risk and ensures that if some of your stocks decline, others rise and offset your loss, keeping your portfolio in balance. Successful stock investors have publicly reported portfolios that show they hold stocks in a variety of industries and companies. 

6. Do Not Buy Shares From Non-Reputed Brokers

   You might invest in unlisted shares that have the highest likelihood of producing profits with some assistance of a broker. But it is necessary to make sure that the broker or dealer you are trading your unlisted shares with is trusted and reputable. There are a lot of dealers in the unlisted market and more often than not people end up dealing with random brokers that later turn out to have sold the shares at a higher price than others in the market. Any trustworthy broker must guarantee the supply of shares. In the worst case scenario, if a seller or buyer backs out, the broker is required to instantly repay the investor's whole capital investment or the seller's stock.

7. Assessing The Share Value Based On The Company’s Present Events

   Assessing a company's value based on the current scenarios and then investing in it can be a huge blunder that one can commit. Unlisted shares can move or fluctuate a lot, so you need to time your investment carefully. Try to invest after doing your research at the proper price in addition to choosing the right firm. It is really important to be farsighted as even if the company is doing well now, that might not be the case a few years down the line.

8. Relying on Emotions

   When you choose an investment, a number of biases come into play. Another typical investment blunder is to depend too much on emotions in a tumultuous market. If you can't wait a few days to buy or sell a stock, you're probably acting on impulse. Your investment decisions should not be hurried.  In the unlisted market, the less emotions you stir up, the better.

9. Waiting to Get Even

   Another mistake that you must avoid when investing is waiting to break even. To get even, you must hold on to a losing stock until it reaches its original price. It is referred to as a "cognitive error" in behavioural finance, which means that by refusing to acknowledge a loss, you are losing twice. The first is to refrain from selling the declining stock, which could continue to decline and lose all of its value. Second, you're missing out on the chance to spend that investment money on a more advantageous purchase.

10. Be Mindful Of Your Wealth Allocation

    More than 40% of one's wealth shouldn't be invested in unlisted shares because these assets aren't very liquid. They will provide good returns, but since a person's financial situation may change at any time, it is advisable to invest according to one's available funds while planning for unforeseen demands.

Closing

In conclusion, these are some obvious mistakes to avoid while investing in stocks. But some of the errors we've talked about will be made by investors. Fortunately, you can embrace your inner adolescence and learn from your errors. The majority of people learn more from their setbacks than their victories.

Always consider the long term when choosing a company to shortlist, and do your research. Don't invest in a firm just because a stock market expert has done so or because it is currently yielding great returns. Once you have decided to wager on a business with solid fundamentals, invest and give your bets enough time to pay off.