When it comes to investing, you have 3 camps, the overly cautious who believe finance is more or less a game of chance to all but the initiated, and the optimistic novice who believe they can make it big by reading a few Benjamin Graham books and studying how Fibonacci sequences work.
The successful investors fall somewhere in the middle, they are neither too bullish or bearish, but do not enter a trade unless they know exactly what they’re getting into. Unfortunately, they tend to be the minority. However, it’s possible for anyone to become a successful investor by refraining from committing a few mistakes when starting. Here are a few mistakes first time investors make.
Playing to Fads
This is probably one of the most common and dangerous mistakes first time investors commit. And ironically, it is also one of the main reasons many investors get in the trade in the first place. While following buying and selling trends is an essential aspect of trading, jumping into trades simply because it’s part of a trend can be dangerous.
And this is exactly what we’re seeing right now with Bitcoin and cryptocurrencies. While these assets may have a certain value from a speculative standpoint, they are largely misunderstood by most new investors. Misunderstanding assets is a sure-fire way to fail as an investor, and making the mistake of investing in something just because it’s hot without understanding it is simply foolish. It’s always better to start investing in things you know so you’ll be able to understand patterns more easily.
Too many first-time investors make the mistake of going all in on one or two major investments when getting started. But that is a sure recipe for disaster. Even the best companies fail, and stocks aren’t immune to sudden crashes. If you’re just getting started, it’s always better to have a wide portfolio, this way, the few mistakes you make will be much less costly and you’ll be able to understand market movements a little better. If you want to learn how to diversify your portfolio, a site like Dollar Cents would be a great place to start.
Getting Overzealous About Penny Stocks
A lot of people get enthralled by the idea of penny stocks when they’re first investing. For many, the idea that you could buy into a company for a few dollars today and have it double or triple in a couple of months may seem too good to be true; and in many ways, it is.
While there have been miraculous cases of penny companies suddenly rising from the ashes, the reality is usually much more grim. Let’s not forget that penny stocks are usually issued by poorly managed, underperforming and grotesquely indebted companies. Not to mention that rallies are often manufactured by shady tipsters who push the stocks up out of pure self-interest. Gains on penny stocks are often pure luck, so unless you’re a professional, we’d suggest you avoid penny stocks at all costs.
Investing isn’t for everyone, but if you manage to keep a level head and go in with the proper education, you should be able to make a good profit if you invest wisely.