Common mistakes every beginner does while investing in stocks - how you should avoid it

Stock market is a place where we can get money and lose money at the same time. Before entering in the stock market, we have to be ready to lose money too.

After all, there isn't any investor in this world who haven't lost any money. Right from Warren Buffett to Rakesh Jhunjhunwala, everyone has lost money, but, they have gained much more money throughout the years as compared to their loses by learning from their mistakes which is the most important thing.

This article emphasises on some common mistakes that beginners do when they start out in the stock market and how you should try to avoid it if you don't want to get a heart attack.

Here are some mistakes that beginners(even some rookies) do while investing

• Investing without researching

Once you have entered the stock market, there is a whole spectrum of emotions that runs within you- excitement, confusion, anxiousness, rage.... frenzy etc.

In this moment, many people lose their hard earned money by investing in the bad stocks without any research and go broke and start blaming the stock market. Investing without researching is just like throwing away your money for free.

Just like when you research before buying an electronic product like a smartphone, refrigerator or a television etc, why not research about the company before buying its stock? By research only you can expect to earn some good money from the stock market.

Remember, you are your own enemy in investing. So do your research well before investing in something.

• Investing with other's money

Don't ever make the mistake of investing with someone else's money. It is recommended that you invest with your own money or don't invest at all.

There are many reasons to this. One major reason is, you don't want to get into debt by taking loan from others.

Also there is a possibility that you might fail by investing in the wrong stocks which will further worsen your situation.

Trading with someone else's money would be the worst idea ever on the pretext of earning and giving false hopes to others as well as yourself. So make sure you don't trade with money from any debts or loan

• Investing all of own's income

Most people make this mistake of often putting the majority of their monthly income into investments without much thinking.

At the end, they don't even have money for their daily needs like food, rent and other necessities.

Make sure you have a stable(more than enough) income that helps you in your daily financial necessities. Then only use that money for trading. Also if you have any amount overdue or mortgage close them as soon as possible and then create sufficient extra money(savings) to invest in stock.

The money kept for investment should be free of any monthly expenses. While there is no fixed amount of percentage to put in investments but you can start by investing about 10%-20% of your net income.

• Not having patience/discipline and selling good stocks

There have been many cases where people don't have the patience or discipline and have sold their shares for little profits thereby missing the opportunity of earning more money.

Warren Buffett says, "We don't have to be smarter than the rest. We have to be more disciplined than the rest."

Below here is an image of  a real life story where there was an opportunity of earning more but that couldn't happen because of lack of patience and discipline. Hope this story gives you some motivation for holding stocks. Remember, Be an investor, not a momentum trader.

Source : Quora.com

Hope you like this article and learn some valuable inputs from it. If any doubt/queries, feel free to comment in the comment section.

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Here's how you can start investing in the stock market

Investing in the stock market looks very lucrative at times and it is. But most people just think of investing in it some day and that day never comes though. This thought of investing have crossed almost every person's mind but somehow it remained as a thought. This article is for those who are really serious about this and want to get started. There are really very simple steps by how one can successfully start investing in the stock market.

If you are not really into stock market or don't follow it and don't have any knowledge in it, I suggest you get some knowledge about some basics of stock before investing which i had explained in the previous article.

Basic information and key points about stock market before investing

So let's get started

You should have the following requirements to start investing in the Indian stock exchange.

• Demat account

Just as you need a bank account for online transactions, just like that, you will need a demat account to do trading by which you can buy and sell shares/buy or sell any security.

Demat account opening is also like a regular bank account opening so it's not a difficult task.

• Get yourself a broker

Normal people like me and you cannot buy and sell stocks at the stock exchange.

Only brokers can do that who are registered with SEBI(Securities & Exchange Board of India) which is the regulatory body of the stock markets in India.

There are literally dozens of good brokers/brokerage firms in the market, so finding a broker wouldn't be a big deal for you. Just research and get yourself a broker. 

• Get a PAN card

If you already have a PAN card, good, but if you don’t, i suggest you apply for a PAN card.

You should have a PAN card when you buy shares/mutual funds/any other securities etc(for tax purposes).

• Check if you need a UIN

An investor who is involved in a single transaction of Rs 1,00,000 or more will have to quote his/ her UIN.

If you plan to be a prominent stock market player or a mutual fund investor and expect to deal with such huge amounts in the near future, you should get a UIN.

That's it. Easy, isn't it.

These steps qualifies you to trade successfully in the stock market. The real test starts after this. People should be really careful while trading in the stock market, especially beginners. The next article would be about mistakes that most beginners do while investing and how to avoid it.

Hope this article helps you in the future. Let me know any queries in the comment section.

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Basic information and key points about stock market before investing

The Stock Market is the business of buying and selling stocks. There are many different stock exchanges around the world which are markets where the stocks, bonds, and securities are bought and sold.

Here are some basic information about stocks

• If a person owns a stock in a company they own a part of that company.

• Stocks are known as shares in a company. If a company issues 100 shares, and you own 10 shares, then you own 10% of the company.

• People buy stocks because they hope that the company will grow and become worth much more money. As the company becomes worth more, the investment in the stock becomes worth more.

• If someone buys (invests money into) a stock and the company value goes up, the investment is worth more. If they want to sell the stock they will make a profit.

• Some stocks go down in value and investors lose money.

• Sometimes an investor buys stocks and they become worthless because the company fails and closes its doors.

• When the stock market is overvalued it is considered to be a 'bubble', and when the bubble bursts usually people lose a lot of money.

• When stock market prices are climbing it is referred to as a 'bull market'.

• When stock prices are falling it is referred to as a 'bear market'.

• The stock markets help to raise money for companies when they need capital to expand, and this in turn creates the potential for investors to make money on stocks.

The next logical question is:

Who sets the stock prices and how are they calculated when a company goes public?

In simple terms, the stock price of a company is calculated when a company goes public, an event called an initial public offering (IPO).

This is when a company pays an investment bank to use very complex formulas and valuation techniques to derive a company's value and to determine how many shares will be offered to the public and at what price. 

For example, a company whose value is estimated at $100 million may want to issue 10 million shares at $10 per share or they may want to issue 20 million at $5 a share

After a company goes public and starts trading on the exchange, its price is determined by a variety of factors

Factors that affect the stock prices(key points)

Economic factors

1. GDP of the country

2. Economic outlook

3. Inflation

4. Deflation

5. Economic and political shocks/stability

6. Changes in economic policy.

7. The value of the country's currency

Company news and performance

Here are some company-specific factors that can affect the share price:

• news releases on earnings and profits, and future estimated earnings
• announcement of dividends
• introduction of a new product or a product recall
• securing a new large contract
• employee layoffs
• anticipated takeover or merger
• a change of management
• accounting errors or scandals

Industry performance

Often, the stock price of the companies in the same industry will move in tandem with each other. This is because market conditions generally affect the companies in the same industry the same way. But sometimes, the stock price of a company will benefit from a piece of bad news for its competitor if the companies are competing for the same market.

Investor sentiment

Investor sentiment or confidence can cause the market to go up or down, which can cause stock prices to rise or fall. The general direction that the stock market takes can affect the value of a stock:

• bull market – a strong stock market where stock prices are rising and investor confidence is growing. It’s often tied to economic recovery or an economic boom, as well as investor optimism.
• bear market – a weak market where stock prices are falling and investor confidence is fading. It often happens when an economy is in recession and unemployment is high, with rising prices.

Investors look at all these factors before investing a huge amount in the stocks or any other security.

By this time you may have got good knowledge on stock market, so you should check out Here's how you can start investing in the stock market

Hope this article helps you. If anything you want to add to this article, make sure you comment in the comment section

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