It’s no secret that the 2020 pandemic introduced a fresh flood of young investors ready to try their luck in the stock market. Many investing mistakes and lessons were made by these young investors.
The pandemic provided the ideal opportunity to begin investing, since stocks were less expensive to purchase as the market fell. Interest rates were near zero, leaving many millennials trapped at home with nothing to do.
Furthermore, many new brokerages provide excellent sign-up bonuses with no minimums and low-commission trading. This enables practically anybody to begin investing, even with a modest sum of money.
I made a lot of blunders when I first started investing. These are the five mistakes I made that you should learn from and avoid if you are starting your investment journey.
Investing Mistakes #1. Letting my emotions rule
Personally, I believe that every investor could have possibly made the very same error at some point in their journey. Fear and greed do really dominate the market. When an investor allows emotion to govern, it is the beginning of a downward spiral in which one should focus on the broader picture. This sort of negative return and panic sale occurs when an investor is governed by emotion, when they would be better off holding the investment for the long term.
I was a victim of this because I panic sold during the COVID crisis, thinking I could “time the market.” Instead, I failed terribly as the market recovered in a ‘V’ shape, taking just a few months to return to its all-time highs. I believe it was a tuition fee well spent because I found this early in my investment journey.
Investing Mistakes #2. Following advice from the media
The media always posts issues that grab attention, which may or may not be the most wise financial advice. When investing, it is critical to conduct your own research and read up on the individual providing the financial advice on Tiktok, Instagram, or any other platform. It is critical to filter relevant information from market noise. Many experienced and successful investors obtain information from a variety of independent sources and do their own research and analysis.
When I first started out, I relied heavily on financial advice from youtubers, blogs, and professional analysts. I believe them wholeheartedly without conducting my own due diligence prior to investing, which has caused me in the stock market. Now, I understand how to filter the noise in the stock market and surround myself with like-minded investors with whom we can bounce ideas off one another.
Investing Mistakes #3. Lack of understanding in a company I invested in
One of the world’s most successful investors, Warren Buffett, cautions against investing in companies whose business models you don’t understand. Hence, to start off, it is important to invest in a company that is in your circle of competence.
One significant example that I previously made was a stock that I purchased — Ticker: MSFT (Microsoft) – and quickly sold. First, I didn’t do any research on Microsoft, and I didn’t understand the business. I sold Microsoft when it was up more than 20%, which cost me a lot of money; at its peak, I might have gained up to 70%. In retrospect, I regret not understanding more about valuation.
4. Chasing the trends – FOMO
The GameStop craze exemplified what Fear of Missing Out (FOMO) is all about. Investing in GameStop or new cryptocurrencies is the most common mistake investors make in 2021.
“A lot of investors make the mistake of chasing trends or what’s cool because of FOMO,” Boneparth added. Many new investors entered the stock market during a bull market, which may have clouded their judgment and led them to make financially imprudent decisions.
I was a victim myself, investing in companies with terrible fundamentals and, as some might say, “Companies that are selling you the dream.” Lemonade, Nikola, Virgin Galactic, and Teladoc are among the unprofitable startups in which I have invested. Fortunately, it was a little piece of my portfolio that I am pleased I learnt from.
5. Constantly checking my portfolio
According to research, the more regularly investors, monitor their portfolio, the more risky they perceive investing to be. This is also known as myopic loss aversion: when investors continually monitor their investments, they become more sensitive to losses than gains.
Of course, not checking your portfolio at all makes no sense. What happens to me is that whenever I continually monitor my portfolio, my buy-sell volume increases, and I begin to realise I no longer invest for the long term. Furthermore, once the stock market drops, I am more inclined to make impulsive decisions and, as a result, risk losing money.
Now, I hardly ever look at my portfolio anymore. I only log into my broker on days when I find a good investing opportunity. As many successful investors suggest, when you first start investing, you must trust the process and take a bird’s-eye view of your investments.
Making mistakes is a natural part of the investment process. Being a successful investor requires knowing what they are, when you are committing them, and how to prevent them. To avoid making the same mistakes I made, you should create and stick to a disciplined investment strategy. Set aside some “fun” money that you are totally willing to lose if you choose to invest in riskier things. I am confident that if you avoid the aforementioned blunders, you will be well on your way to constructing a portfolio that will provide healthy long-term returns.