5 mistakes beginner investors should avoid.

1. Starting out with little capital

When you begin investing in the stock market as an amateur, you want to begin with an amount that will cover your trading costs. Chances are if you are under 40 yrs of age you won’t have much dough to risk losing but you will have much time to recover it. The point of your investing a bigger amount than you normally would is to force you to take investing seriously. If you start out with an amount that you can afford to ignore will not help you acquire the skills to learn investing.

2. Expecting to make substancial profits

There’s an old say that you should expect to lose all your money in the first 5 years of starting your investing endeavor. I can personally vouch  for this, as in my first 4 years of investing out of high school I lost the several thousand dollars I started out with. Despite having lost over 90% of my capital, I learned skills that no book or teacher would have taught me (Ask any experienced trader, they will tell you the same).

3. Investing without a plan/set goals

If you think investing is of making lots of money buying the next IPO, penny stock, tech stock, or stock tip, think again. Investing is a business. Just like running a mom and pop shop, restaurant, or retail store, investing requires a plan. What does this mean? It means, you need to manage and analyze your risk, money, and time among other things. Familiarize yourself with the company stock or security you are purchasing. Observe the chart movements, read the news about it, the major holders, the way it reacts to information (eg. earnings release, breaking news, new product release, government policy changes).

Have clear goals on what to, when to, why to, how to, buy or sell a stock. And write them down, this helps so much. Just like you would write goals about your life that you want to achieve, like going to college, saving for a car, etc (you get the point).

4. Ignoring Money Management

Part of being a good investor is knowing how to manage your capital. It is an essential skill that many beginners ignore. Look at your costs of trading, these include commissions and interests you might be paying to the broker. Do not ignore the allocation of your money because there will be times when opportunities come along when you need cash on hand to buy up a bargain, it goes back to the phrase “don’t put all your eggs in one basket (investment)”. Spread the risk.

5. Haste makes waste

Timing is a huge part of investing that beginners also ignore. This is why I recommend observing the investment you want to buy before you jump in. As you familiarize yourself with the stock’s “personality” you will get a sense of how to approach your trading tactics. Some stocks are very volatile and you might want to buy it in increments to avoid risks, while the stable ones you can jump right in and save some commission costs. In addition, if you have ideas or predictions about the movement of a stock make sure you take into account the time frame of your prediction. Your prediction might be true but when will it be true. Should you buy the stock now or wait till you see signs of this prediction coming true.

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